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MUNICIPAL   OWNERSHIP 


•  MUNICIPAL 
OWNERSHIP- 

FOUR  LECTURES  DELIVERED  AT 

HARVARD     UNIVERSITY 

1907 


BY    LEONARD    DARWIN 

AUTHOR   OF    "MUNICIPAL  TRADE" 


NEW  YORK 

E.  P.  BUTTON  AND  COMPANY 
1907 


Printed  in  Great  Britain. 


DEDICATED,    IN   GRATEFUL    REMEMBRANCE 

OF  THEIR  KINDNESS,   TO  MY  FRIENDS 

ACROSS  THE  SEA  IN  CAMBRIDGE. 

L.  D. 


LONDON, 

October  1907. 


213155 


CONTENTS 


LECTURE    I 

OWNERSHIP  NOT  THE  MAIN  QUESTION 

THE  words  municipal  ownership  do  not  suggest 
the  real  points  at  issue.  When  should  labour 
be  directly  employed  by  municipalities  is  the 
vital  question 


PAGE 


THE  REGULATION  OF  PRIVATE  INDUSTRY 

Municipal  monopolies  must  be  controlled  for 
the  sake  both  of  the  consumer  and  of  the  tax- 
payer. The  unearned  increment  of  value  can 
be  captured  by  the  issue  of  short-period  fran- 
chises to  private  corporations.  With  well- 
considered  franchises,  private  industry  can  be 
efficiently  controlled;  though  the  exact  con- 
ditions to  be  imposed  are  not  easily  deter- 
mined. The  grant  of  franchises  on  too  hard 
terms  has  damaged  the  electrical  industry  in 
England.  The  terms  of  franchises  must  be 
sufficiently  liberal.  Further  reform  of  the  laws 
affecting  municipal  monopolies  in  private  hands 


CONTENTS 

is  much  needed  in  the  United  States  and  in 
England.  This  enquiry  concerning  private 
industry  is  a  necessary  preliminary  to  a  study 
of  municipal  ownership ;  because,  in  cases 
where  municipal  ownership  would  now  be  an 
improvement  on  private  industry,  it  would  not 
necessarily  be  so  if  private  industry  were  better 
controlled 


MUNICIPAL  OWNERSHIP  AND  LOCAL  TAXATION 

The  financial  questions  connected  with  muni- 
cipal ownership  will  first  be  considered.     In 
studying  the   English   statistics  of  municipal 
ownership,    we    are    in    effect    studying    the 
financial  effects  of  direct  employment.     Gain 
and  loss,  which  are  defined,  are  of  far  more 
importance  than  profit  and  deficit.     It  cannot         / 
be  directly  proved  that  English  cities,  where        / 
there  is  much  municipal  ownership,  are  either       / 
more  or  less  heavily  taxed  than  those  where       / 
there  is  but  little     .       -,'    ,   .        .        .        .^J     24 


LECTURE   II 


MUNICIPAL  STATISTICS 

THE  gain  may  be  estimated  by  deducting  the 
income  foregone  from  the  profits.  Neither 
individual  cities  nor  industries  should  be  con- 
sidered. English  statistics  indicate  the  prob- 
ability of  a  small  net  deficit  on  new  municipal 
ventures.  The  probable  loss  is  more  than  the 
probable  deficit  for  various  reasons  :  including 


CONTENTS  xi 

PAGE 

the  inadequate  charge  made  for  depreciation, 
and  the  possibility  of  obtaining  rents  from 
private  corporations.  The  loss  is  probably 
more  than  the  charge  for  the  sinking  fund ; 
and,  if  so,  English  cities  are  losing  by  their 
municipal  policy 33 

PRICE  AND  QUALITY 

It  cannot  be  proved  that  goods  are  made 
more  or  less  cheaply  by  municipal  industries, 
because  of  the  difficulties  connected  with  such 
comparisons  connected  with  prices.  In  com- 
paring the  relative  qualities  of  goods,  difficulties 
of  the  same  kind  are  also  met  with.  Statistical 
results  are  thus  not  refuted,  but  rendered  more 
doubtful 48 

A  PRIORI  ARGUMENTS 

The  inherent  probability  of  profit  -  making 
should  be  considered.  The  reward  of  capital 
is  much  the  same  in  municipal  as  in  private 
industry.  This  is  frequently  denied ;  because 
the  difference  in  the  conditions  is  not  ap- 
preciated. A  slight  gain  from  the  greater 
credit  of  cities  is  possible.  But  the  manage- 
ment is  likely  to  be  less  economical  for  various 
reasons.  The  net  result  to  cities  is,  therefore, 
probably  a  loss  f  •  •  .  .  .  .  52 

FINANCIAL  CONCLUSIONS 

These  a  priori  conclusions  are  not  refuted 
by  statistics.  English  statistics  are,  however, 


xii  CONTENTS 

PAGE 

only  relevant  if  the  English  methods  are  being 
followed.  A  priori  arguments  are  alone  to  be 
relied  on  in  judging  of  the  effect  of  more 
advanced  policies.  Certainly  no  great  gain  is 
made  by  municipal  ownership  in  England  ; 
and  general  financial  considerations  tell  dis- 
tinctly against  the  direct  employment  of  labour 
in  all  circumstances  .....  64 


LECTURE    III 

MUNICIPAL    CORRUPTION 

WILL  municipal  ownership  tend  to  purify  civic 
life?  English  civic  purity  has  not  increased 
concurrently  with  municipal  ownership,  but  is 
of  older  growth.  Municipal  industry  is  bene- 
ficial by  adding  to  the  importance  of  local 
administration.  But  it  deters  busy  men  from 
serving  on  councils,  and  it  tends  to  demoralise 
the  electorate.  Corruption  with  reference  to 
private  franchises  would  cease  with  the  aban- 
donment of  private  industry.  But  the  risk 
of  corruption  cannot  be  avoided  as  regards 
any  part  of  the  expenditure  incurred  under 
municipal  ownership ;  and  municipalisation 
makes  the  disease  less  easy  to  cure.  Muni- 
cipal employees  are  not  likely  to  be  dis- 
franchised    67 

WAGES  IN  MUNICIPAL  INDUSTRIES 

The  pay  of  municipal  workmen  is  better 
than  that  of  private  workmen.  The  direct 
employment  of  labour  affords  no  reason  for 


CONTENTS  xiii 

PAGE 

this  superior  treatment ;  and  the  extra  taxation 
thus  thrown  on  private  workmen  cannot  be 
justified.  All  industry,  municipal  and  private, 
should  be  subject  to  regulations.  The  higher 
pay  of  municipal  workmen,  on  the  whole, 
affords  an  argument  against  direct  employ- 
ment .  , 83 


THE  CASE  FOR  DIRECT  EMPLOYMENT 

The  fact  that  municipalities  can  regulate 
prices  best  if  they  manage  works  themselves, 
tells  in  favour  of  municipal  water  supply. 
Private  proprietors  must  strive  to  make  pro- 
fits ;  and  this  fact  justifies  the  municipal 
operation  of  certain  services,  but  not  the  con- 
struction of  the  works.  The  question  at  issue 
is  whether  industries  owned  by  municipalities 
should  also  be  directly  managed  by  the  civic 
authorities.  The  foregoing  arguments  on  the 
whole  tell  against  direct  employment  in  the 
case  of  ordinary  industries.  But  other 
questions  relevant  to  municipal  ownership 
generally  remain  to  be  considered,  which  may 
strengthen  the  case  against  direct  employment.  91 


LECTURE   IV 

MUNICIPAL   OWNERSHIP 

THE  merits  of  municipal  ownership  without 
reference  to  direct  employment  now,  therefore, 
remain  to  be  discussed.  No  risk  is  thrown  on 


xiv  CONTENTS 

PAGE 

citizens  when  franchises  are  granted,  and  the 
interest  of  the  public  can  be  safeguarded  in 
terminable  franchises  quite  as  well  as  in  leases. 
The  following  are  the  main  objections  to 
municipal  ownership  : — The  national  dividend 
will  be  diminished.  Municipal  indebtedness 
will  be  increased.  Municipal  management  will 
be  lacking  in  initiative ;  and  it  will  increase 
the  tendency  for  industries  to  become  mono- 
polies. On  the  other  hand,  socialists  hold 
that  modern  industrial  methods  are  wasteful 
and  cruel.  Where  the  balance  of  argument 
tells  against  municipal  ownership,  there  the  case 
against  direct  employment  is  strengthened  .  104 


GENERAL  CONCLUSIONS 

No  formula  can  be  laid  down  indicating  the 
limits  of  municipal  ownership.  General  con- 
clusions only  can  be  stated,  and  each  case  of 
municipalisation  must  be  judged  on  its  own 
merits  .  .  ^  .  .  .  ,•  122 


SOCIALISTIC  IDEALS  AND  MUNICIPAL  OWNERSHIP 

To  what  extent  is  municipal  ownership  a 
realisation  of  the  ideals  of  socialists?  It 
cannot  be  laid  down,  as  a  general  rule,  that 
either  the  richer  or  the  poorer  classes  will 
be  thus  benefited.  Part  of  the  burdens  and 
benefits  are  shifted  on  to  the  landowners,  and  \ 
municipal  ownership  is  certainly,  at  best,  a 
clumsy  method  of  redistributing  wealth.  Cities 


CONTENTS  xv 

PAGE 

with  debts  should  pay  them  off  rather  than 
invest  in  municipal  enterprises.  Direct  em- 
ployment  makes  employment  generally  some- 
what less  regular.  At  present  we  should  study 
existing  municipal  industries  before  adding 
largely  to  their  number  ,  .  •  125 


LECTURE   I 

OWNERSHIP   NOT  THE   MAIN 
QUESTION 

HAD  this  course  of  lectures  been  delivered  in 
England,  "  Municipal  Trade"  would  probably 
have  been  selected  as  the  descriptive  title ; 
because  these  words  would  best  have  brought 
to  the  minds  of  Englishmen  the  range  of  the 
subjects  to  be  dealt  with.  Municipal  trade  is, 
however,  an  ill-selected  phrase ;  for  it  focuses 
the  mind  too  exclusively  on  questions  connected 
with  profit  and  loss.  When  I  had  the  honour 
to  receive  an  invitation  to  deliver  a  course  of 
lectures  in  the  United  States,  in  order  to  indicate 
their  scope,  I  decided  to  entitle  them  "  Municipal 
Ownership."  But,  even  though  a  title  may  not 
be  misunderstood,  it  may  do  harm  by  giving  an 
initial  bias  to  the  mind  ;  and  it  is,  therefore, 
worth  considering  briefly  whether  "  Municipal 


2  LEGAL  OWNERSHIP 

Ownership"  is  a  more  happily  selected  phrase 
than  its  English  equivalent  "  Municipal  Trade." 

What  we  wish  to  ascertain  is  whether  the 
word  " ownership"  gives  a  true  indication  of 
the  main  aims  of  the  advocates  of  municipal 
ownership.  In  ordinary  conversation  this  word 
is  somewhat  loosely  used.  In  speaking  of  the 
owner  of  a  farm,  we  often  mean  the  individual 
who  leases  the  farm  to  a  farmer,  and  who,  during 
the  currency  of  the  lease,  has  no  power  to  deal 
with  the  land,  his  action  being  confined  to  the 
extraction  of  a  rent.  On  the  other  hand,  when 
we  speak  of  the  owner  of  a  shop  or  a  manu- 
factory, we  more  often  mean  the  person  who 
conducts  the  business,  and  consequently  makes 
the  profits  or  sustains  the  losses.  Ownership 
having,  therefore,  different  meanings,  it  is  pos- 
sible that  the  advocates  of  municipal  owner- 
ship may  have  very  different  ideals  in  their 
minds. 

Although  questions  connected  with  the  techni- 
cal legal  ownership  of  the  land  on  which  are 
built  the  municipal  industries  we  are  about  to 
consider  are  no  doubt  important,  yet  I  am 
convinced  that  this  controversy  in  England 
does  not,  and  will  not,  in  truth,  rage  round 
this  question  of  legal  ownership.  In  order  to 
illustrate  this  point,  a  brief  allusion  must  be 


NOT  THE  MAIN  POINT  3 

made  to  the  way  in  which  in  England  water- 
works, gas-works,  electric  lighting  works, 
and  street  railways  are  owned  and  managed, 
these  being  the  industries  most  commonly 
municipalised.  But  first  let  me  say,  in  a 
parenthesis,  that  if  all  my  examples  are  chosen 
from  Europe,  it  is  not  because  I  fail  to  see 
that  much  is  to  be  learned  on  these  subjects 
on  this  Continent.  It  is  simply  because  it 
would  be  folly,  if  not  worse,  for  an  English- 
man to  come  to  preach  to  Americans  about 
America. 

In  all  the  industries  just  mentioned  there  is 
seldom  any  direct  effective  competition ;  and 
for  this  reason  they  have  been  described  as 
municipal  monopolies.  We  are  all  familiar 
with  the  fact  that  each  urban  district  is  as  a 
rule  supplied  by  only  one  gas-works.  Now, 
as  regards  English  legislation,  these  municipal 
monopolies  may,  broadly  speaking,  be  divided 
into  two  classes,  which  may  perhaps  be 
described  as  the  older  and  the  newer  muni- 
cipal monopolies.  Water-works  and  gas-works 
belong  to  the  former  class,  being  subject  to 
laws  framed  many  years  ago.  The  newer 
monopolies  include  electric  lighting  works  and 
street  railways,  the  Acts  of  Parliament  by 
which  they  are  controlled  having  been  passed 


4  LEGAL  OWNERSHIP 

somewhat  more  recently.  These  later  Acts, 
therefore,  serve  to  indicate,  in  comparison  with 
the  more  old-fashioned  legislation,  the  drift  of 
modern  ideas ;  and  it  will  therefore  be  best 
for  this  reason  to  confine  our  attention  for  the 
present  almost  entirely  to  these  newer  municipal 
monopolies. 

Taking  street  railways  as  an  example  for 
discussion,  we  find  that  they  may  be  managed 
in  three  distinct  ways  in  England.  In  the 

//first  place,  they  may  be  owned  and  worked  by 
municipalities,  the  employees  being  directly 
paid  by  the  civic  authorities.  This  is  analogous 
to  the  case  of  an  owner,  who  farms  his  own 
land. 

Again,    English    cities,    whilst  retaining  the 

2  legal  ownership  of  the  street  railways,  may 
lease  them  out  for  terms  of  years  to  private 
corporations1  for  management,  a  rent  being 
received  which  would  usually  be  included 
in  the  ordinary  municipal  revenues.  Here  the 
municipality  plays  the  part  of  the  landowner  who 

1  Where  there  is  a  difference  in  the  words  used  in 
America  and  in  England,  the  American  example  has 
been  followed.  For  "corporation,"  "street  railway,"  and 
"  franchise,"  the  English  reader  should  read  "  company," 
"tramway,"  and  "concession."  "Industry"  and  "local 
taxation  "  have  also  been  used  where  "  trade  "  and  "  rates  " 
would  be  the  more  usual  equivalents  in  England. 


METHODS  OF  MANAGEMENT         5 

lets  out  his  land  to  a  farmer,  and  only  benefits 
from  his  possessions  by  receiving  a  rent. 

In  both  the  foregoing  methods  of  manage- 
ment, the  municipality  is  the  technical  legal 
owner  of  the  industry.  Lastly,  street  railways 
may  be  both  owned  and  managed  by  private 
corporations,  in  which  case  they  have,  as  a 
rule,  been  constructed  under  the  Tramways' 
Act  of  1870.  In  accordance  with  the  provisions 
of  this  Act,  corporations  can  obtain  franchises 
which  enable  them  to  build  and  manage  street 
railways,  the  municipalities  concerned,  however, 
retaining  the  right  both  to  purchase  the  works 
at  the  end  of  a  period  of  twenty-one  years, 
and  in  the  meantime  to  draw  from  the  corpora- 
tion an  annual  payment  or  rent.  When  the 
franchise  period  of  twenty-one  years  has  elapsed, 
a  municipality  may  either  undertake  the  manage- 
ment of  the  street  railway  itself,  in  which  case 
it  ceases  to  belong  to  the  class  of  street  rail- 
ways now  under  consideration ;  or  it  may 
permit  the  same  private  corporation  to  con- 
tinue to  manage  the  business  under  similar 
conditions  to  those  obtaining  during  the  first 
term  of  the  franchise.  In  this  case  the 
municipality  adheres  strictly  to  its  original 
functions — namely,  those  of  an  administrative 
body.^ 


fc«rTHE 


6  LEGAL  OWNERSHIP 

Thus  street  railways  in  England  may  be  either 
owned  and  managed  by  municipalities  ;  or  owned 
by  municipalities  and  leased  out  to  private 
corporations  for  working ;  or,  lastly,  owned  and 
managed  by  private  corporations  under  conditions 
imposed  by  the  State.  But  it  is  the  comparison 
between  these  two  last  methods  of  operation  to 
which  attention  is  now  called  :  that  is,  to  the 
contrast  between  railways  owned  by  munici- 
V  palities  and  leased  to  private  corporations,  and 
railways  owned  and  managed  by  private  corpora- 
tions. In  both  cases  the  municipality  is  for  the 
moment  doing  nothing  whatever  with  regard  to 
the  street  railway  but  extracting  a  rent  from  its 
managers  ;  and  in  both  cases  there  are  definite 
stated  periods  at  which  the  municipality  may 
either  take  possession  of  the  railway  or  make 
fresh  terms  with  the  managing  private  corpora- 
tion as  to  rent  and  fares.  There  are  no  doubt 
important  differences  between  these  two  methods 
of  operation.  But  in  these,  the  most  important 
respects,  there  is  a  close  similarity  between  them  ; 
although  in  the  one  case  the  municipality  is,  and 
in  the  other  case  it  is  not,  the  technical  legal 
owner.  One  is  a  case  of  municipal  ownership 
and  the  other  is  not.  Yet  the  choice  between 
these  two  methods  arouses  but  a  very  feeble 
interest  in  England,  and  it  appears,  therefore, 


QUESTIONS  PROPOSED  7 

that  t^mcaMega^wnership^is^ not the  funda- 
mental point  at  issue. 

The  contrast  which  does  excite  interest  is  that 
between  industries  in  which  the  employees  are 
paid  by  the  municipalities  and  those  in  which 
they  are  not  so  paid,;  and  from  this  it  follows 
that  the  direct  employment  of  labour  is,  in 
truth,  the  pivot  about  which  this  question 
turns. 

The  expression  "  municipal  ownership"  is 
now  so  well  understood  that  its  use  cannot  be 
avoided.  But  we  must  not  be  led  by  its  use  to 
divert  our  enquiry  from  its  proper  course.  The 
foregoing  considerations  lead  me  to  believe  that 
the  following  two  questions  will  indicate  the 
points  to  which  our  attention  should  be  mainly 
directed,  and  will  bring  us  straight  to  the  heart 
of  this  controversy.  At  all  events,  the  following 
are  the  questions  which  are  now  proposed  for 
your  consideration  : 

1.  What  is  the  best  method  of  controlling 

those  municipal  monopolies  in  which 
the  employees  are  paid  by  private 
proprietors  ? 

2.  What  .are  the  urban  services  in  which  it 

is  on  the  whole  best  that  the  work 
should  be  performed  by  employees 
directly  paid  by  the  civic  authorities  ? 


PRIVATE  INDUSTRY 

This  is  nearly  equivalent  to  asking  in 
what  cases  should  we  abolish  the  con- 
tractor, that  word  being  used  in  its 
widest  sense. 


THE  REGULATION  OF  PRIVATE 
INDUSTRY 

Although  at  first  sight  this  first  question  may 
appear  to  have  no  connection  with  municipal 
ownership,  yet  good  reasons  can  be  adduced  for 
dealing  with  it  in  connection  with  this  enquiry. 
One  of  the  main  functions  of  education  should  be 
to  make  us  take  broad  views  of  every  subject ; 
and  certainly  few  sources  of  error  are  more 
common  amongst  uneducated  persons  than  those 
which  arise  from  regarding  only  one  side  of  a 
question.  Here,  in  the  United  States,  you  are 
asking  yourselves  whether  it  would  be  a  beneficial 
reform  to  municipalise  a  considerable  number  of 
industries.  But  it  is  surely  not  enough  merely 
to  consider  whether  municipal  ownership  would 
be  an  improvement  on  private  industry  as  it  now 
exists.  Enquiry  should  be  made  concerning  all 
possible  methods  of  reform  in  order  to  decide 
which  would  produce  the  best  results.  If  the 


METHODS  OF  CONTROL  9 

discussion  is  not  conducted  in  this   spirit,  the 
result  may  be  a  proposal  to  start  reforms  in  a 
wholly  wrong  direction.      Municipal  ownership  " 
might  be  better  than  private  industry  as  the  law  / 
now  stands,  whilst  private  industry  under  wiser 
regulations    might    be    better    than    municipal 
ownership.     Reforms  in    both  these    industrial 
methods  must  therefore  be  considered. 

The  subject  now  to  be  discussed  is  therefore 
the  best  method  of  controlling  private  industry,  i 
A  great  deal  might  be  said  on  this  question  ;  but 
my  remarks  will  be  brief  in  order  to  enable  me 
to  revert  to  other  questions  more  directly  con- 
nected with  municipal  ownership.  In  fact,  my 
only  object  will  be  to  show  that  much  remains 
to  be  done  in  the  direction  of  improving  the  laws 
affecting  the  control  of  municipal  monopolies  in 
private  hands. 

In  order  to  shorten  this  enquiry,  reforms 
desirable  only  in  the  case  of  monopolies  in 
private  hands  will  alone  be  considered.  Many 
reforms  may  perhaps  be  desirable  with  regard 
to  all  industry,  whether  in  private  hands  or 
whether  conducted  by  civic  authorities ;  but 
these  reforms  may  now  be  dismissed,  because, 
being  applicable  both  to  municipal  and  private 
industry,  they  would  not  affect  the  comparison 
between  the  two.  Again,  although  it  is  true 

B 


ro  PRIVATE  INDUSTRY 

that  municipal  ownership  in  England  is  not 
always  confined  to  monopolies,  yet  no  legis- 
lative safeguards  are  required  to  protect  the 
consumer  where  competition  is  both  free  and 
effective  ;  because  the  power  of  rapidly  changing 
his  source  of  supply  at  any  time  gives  him 
in  these  circumstances  the  best  possible  safe- 
guard. Thus,  as  regards  public  interests,  the 
enquiry  may  safely  be  limited  to  the  reform 
of  monopolies  in  private  hands ;  and,  if  so 
limited,  the  main  points  to  be  considered  are 
the  methods  of  ensuring  to  the  consumer  the 
best  possible  return  for  his  money — not  only 
immediately,  but  in  the  long  run ;  and,  as 
regards  the  taxpayer,  what  is  usually  known 
as  the  capture  of  the  unearned  increment  of 
value. 

As  to  the  capture  of  the  unearned  increment 
of  value,  here  again  we  have  a  phrase  from 
the  use  of  which  we  can  hardly  escape,  although, 
in  truth,  it  is  somewhat  objectionable  ;  because 
it  tends  to  make  us,  like  gamblers,  think  only 
of  gains  and  be  blind  to  possible  losses.  In 
rapidly  -  growing  towns,  franchises  for  the 
establishment  of  gas-works,  for  example,  are 
very  valuable  possessions :  possessions  which 
frequently  keep  increasing  in  value  year  by 
'year.  The  causes  of  this  increase  of  value  of 


UNEARNED  INCREMENT  11 

municipal  monopolies  need  not  here  be  dis- 
cussed ;  but  certainly  they  are  largely  beyond 
the  control  of  their  private  proprietors.  Is  it 
right,  then,  that  these  private  proprietors  should 
reap  the  bulk  of  the  benefit  of  this  increase  of 
value?  Obviously  not,  especially  if,  like  the 
gambler,  we  may  be  blind  to  their  possible 
losses ;  and  arrangements  should  always  be^ 
made,  when  new  franchises  are  being  granted, 
for  the  capture  of  this  unearned  increment  of 
value  for  the  benefit  of  the  public. 

In  the  case  of  the  industries  here  described 
as  the  newer  monopolies,  this  end  is  gained 
in  England  by  making  the  franchises  granted 
to  their  owners  terminable  in  a  given  number  of 
years ;  twenty-one,  as  already  remarked,  in  the 
case  of  street  railways,  and  forty-two  in  the 
case  of  electric  lighting  works.  At  the  termina- 
tion of  these  franchises,  the  cities  in  question 
can  enter  into  possession  of  these  works,  and 
thus  acquire  for  themselves  any  growth  of 
value  which  had  occurred  during  these  periods ; 
or,  if  the  private  corporations  be  then  permitted 
to  retain  the  management,  the  same  result  can 
be  equally  well  obtained  by  the  rents  paid  to 
the  cities  then  being  raised.  It  is  true  that, 
during  the  currency  of  a  franchise,  a  private 
corporation  may  gain  somewhat  on  account  of 


12  PRIVATE  INDUSTRY 

any  unexpected  growth  of  the  city.     But  this 
is    in    reality    a    comparatively    small    matter ; 
especially   if   unexpected   losses   be  taken    into 
account.       Thus,    if    a    system    of   terminable 
'franchises  be  adopted,  the  capture  of  the   un- 
earned  increment    of   value    from    the    private 
proprietors  of  municipal  monopolies   in  reality 
^  presents  no  serious  difficulties. 

We  are,  however,  discussing  private  industry 
mainly  with  the  view  of  comparing  it  with 
municipal  ownership ;  and  it  is  obvious  that 
this  increment  of  value  (as  well  as  any 
decrement  of  value)  of  municipal  monopolies 
will  fall  undiminished  into  the  lap  of  any  city 
which  actually  builds  and  manages  such 
industries.  Moreover,  if  a  city  owns  its  own 
street  railways,  for  example,  but,  instead  of 
managing  them,  leases  them  out  to  a  private 
corporation  for  management,  it  can  capture  the 
unearned  increment  of  value  at  the  termination 

fqf  the  lease  by  raising  the  rent.  Thus,  under 
any  system  of  municipal  ownership,  the  un- 
earned increment  can  be  captured ;  and  in  this 
respect  there  is  little  to  choose  between  muni- 
cipal ownership  and  private  industry :  pro- 
vided that  with  private  industry  the  private 
proprietors  are  granted  franchises  for  short 

\v  periods  only.     Unfortunately,  both  here  and  in 


PRICE  AND  QUALITY  13 

England  perpetual  franchises  have  frequently 
been  granted;  and,  as  long  as  this  mistake 
continues  to  be  made,  so  long  will  municipal 
ownership  undoubtedly  continue  to  present 
advantages  as  regards  the  capture  of  the  un- 
earned increment. 

Most  citizens  will,  however,  be  interested, 
not  so  much  in  the  dry  bones  of  a  future 
unearned  increment  of  value,  but  rather  in 
present  prices :  a  point  as  yet  untouched.  The 
owners  of  monopolies  would  doubtless,  if 
permitted,  charge  the  price  which  would  bring 
them  in  the  greatest  profits ;  and  this  price 
would,  as  a  rule,  be  considerably  higher  than 
that  which  would  be  charged  by  the  same 
corporations  if  subject  to  free  competition. 
How,  then,  is  the  owner  of  a  franchise  of  a' 
municipal  monopoly  to  be  forced  to  charge  com- 
petitive prices?  If  perpetual  franchises  are 
to  be  granted,  the  difficulty  of  controlling  the 
private  proprietor  appears  to  be  insurmount- 
able ;  because  it  is  impossible  to  include, 
within  such  franchises,  provisions  framed  to 
meet  all  the  many  alterations  in  the  conditions 
affecting  prices  which  must  occur  as  years  roll 
on.  In  the  franchises  for  English  gas-works, 
sliding  scales  of  prices  dependent  on  the 
dividends  paid  are,  it  is  true,  always  included. 


14  PRIVATE  INDUSTRY 

Some  provision  of  this  kind  should  always  be 
inserted  in  franchises  ;  but  it  is  quite  impossible 
thus  to  solve  this  problem  completely. 

If,  however,  franchises  are  granted  for  short 
periods,  as  in  the  case  of  street  railways  in 
England,  comparatively  little  difficulty  need 
be  experienced  in  regulating  prices  or  fares. 
During  the  currency  of  a  franchise,  the  threat 
to  expel  the  private  proprietor  at  its  termination 
is  a  powerful  weapon  in  the  hands  of  the  civic 
authorities,  greatly  assisting  them  in  making 
unreasonable  corporations  see  reason  ;  and  at 
the  expiry  of  a  franchise,  a  new  scale  of  prices 
could  always  be  arranged.  This  is,  in  truth, 
but  another  way  of  indicating  the  advantages 
with  reference  to  the  capture  of  the  unearned 
increment  of  value  which  cities  may  obtain  by 
retaining  the  right  to  terminate  all  franchises 
granted  to  private  proprietors. 

Thus  far  only  the  price  of  the  goods 
supplied,  and  not  their  quality  has  been  con- 
sidered ;  whereas  price  always  means  the  price 
of  goods  of  a  known  standard  of  quality.  In 
certain  cases  it  may  not  be  easy  to  clearly 
define  in  words  a  measurable  standard  of 
quality.  But,  as  regards  water,  gas,  and  elec- 
tricity no  such  difficulty  arises ;  and,  granted 
that  the  franchises  are  properly  framed,  all  that 


TERMS  OF  FRANCHISES  15 

is  required  as  regards  quality  is  the  appoint- 
ment of  inspectors  not  open  to  corrupt  influences 
— a  condition  more  easily  stated  than  complied 
with. 

No  doubt,  when  a  franchise  has  been  granted 
to  a  private  corporation  for  a  limited   period, 
considerable  difficulties   may  arise  during  the 
currency  of  the  franchise  and  at  its  termination. 
Whether  this  will   be  the  case  or  not  depends 
mainly  on   the  care   bestowed   on  the  framing 
of  the  franchise.     Obviously  the  rent,  if  any,\ 
to  be  paid  by  the  operating  corporation  to  the 
municipality,  and  the  scale  of  prices  permitted 
to    be    charged,    must  be   laid   down.     But   in 
addition  to  this,  the  system  of  valuation  to  be^ 
adopted  in  determining  the  value  of  the  works 
at    its    termination   should   be  clearly  defined.^ 
The  right  to  inspect  the  works  and  the  books  ^ 
of  the  private   proprietors   should   be   retained/-' 
by    the    civic    authorities.       The    watering    of^ 
capital  should  be  prohibited  as  far  as  possible ; 
and  corporations  should  be  rendered  incapable 
of   transferring  their  rights  to  others  without/ 
permission.      Lastly,    as    a    rule,    an    absolute^ 
monopoly  should  be  granted  to  one  corporation/ 
for  a  given  district.     Time  makes  it  impossible 
for  me  to  argue   in   favour   of   all   these   pro- 
visions   thus    imperfectly    outlined ;     but    both 


16  PRIVATE  INDUSTRY 

theory  and  experience  point  to  the  conclusion 
that,  if  they  were  always  included  in  franchises, 
the  civic  authorities  ought  to  be  able  to  ensure 
the  public  being  well  served,  and  there  would 
be  no  reason  why  the  transfer  of  the  business 
of  any  municipal  monopoly  from  one  corpora- 
tion to  another,  or  to  the  city  itself,  would 
present  any  great  difficulties. 

But  even  if  a  decision  be  arrived  at  as  to 
the  general  nature  of  the  provisions  to  be 
inserted  in  franchises,  yet  it  must  not  be 
supposed  that  it  is  easy  to  decide  on  the  exact 
terms  which  should  be  enforced.  With  regard 
to  all  regulations  as  to  the  control  of  private 
industry,  there  are  opposing  aims  which  cannot 
be  reconciled  ;  and  it  is  only  possible  to  seek 
for  the  wisest  compromise  between  them.  As 
in  so  many  social  questions,  the  conflict  is 
often  that  between  present  benefits  and  future 
benefits.  The  present  benefits  in  this  case 
consist  either  of  low  prices  paid  by  consumers, 
or  of  high  rents  paid  by  the  operating  corpora- 
tions ;  whilst  the  future  benefits  to  be  held  in 
view  are  those  which  would  result  from  rapid 
commercial  progress.  If  a  Local  Authority, 
desirous  of  seeing  electrical  works  established, 
for  example,  is  too  rigid  in  its  demands  as  to 
the  price  of  the  electricity,  it  may  be  a  long 


FRANCHISE  PERIOD  17 

time  before  private  promoters  will  come 
forward  to  undertake  the  work.  Thus  to  clog 
the  wheels  of  industry  might  inflict  an  im- 
mediate injury  on  the  public  which  would 
far  outweigh  the  ultimate  benefits  resulting 
from  rigid  provisions  as  to  price  and  quality. 
Scales  of  prices  must  be  so  framed  as  to  make^ 
it  reasonably  certain  that  corporations  will  be 
able  to  obtain  the  normal  rate  of  interest  on/ 
their  capital ;  for,  if  this  be  not  done,  the 
future  will  be  sacrificed  in  a  futile  attempt  to 
grasp  at  present  benefits. 

Difficulties  of  the  same  type  arise  with 
regard  to  the  number  of  years  for  which 
franchises  should  be  granted.  The  shorter 
the  period,  the  sooner,  it  is  true,  will  the  city 
be  able  to  appropriate  any  increase  in  the 
value  of  the  industry  due  to  its  own  growth. 
But  the  profits  made  by  nearly  all  under- 
takings are  at  first  small  as  compared  with  the 
capital  invested ;  because  the  business  begins 
to  grow  but  slowly,  and,  during  that  growth, 
the  capital  expenditure  must  be  on  a  scale 
suitable  for  a  larger  output  than  that  demanded. 
A  corporation,  so  it  is  urged,  must  be  granted 
security  of  tenure  for  a  considerable  number  of 
years  to  enable  it  to  recoup  itself  for  its  suffer- 
ings during  the  initial  stages  of  its  existence. 

C 


V 


18  PRIVATE  INDUSTRY 

In  other  words,  very  short  franchises,  as  ordi- 
narily framed,  will  not  tempt  the  investor  suffi- 
ciently to  induce  him  to  invest  his  money  in 
the  industry  in  question.  In  England  con- 
cessions, as  they  are  there  called,  were  at  first 
granted  to  corporations  for  both  street  rail- 
ways and  electric  lighting  works  for  periods  of 
only  twenty-one  years  ;  and  the  effect  was  to 
greatly  cripple  these  industries.  This  may  be 
illustrated,  as  regards  electric  street  railways,  by 
the  fact  that  there  were  15,000  miles  in  operation 
in  1900  in  the  United  States,  as  compared  with 
less  than  1,000  miles  two  years  later  in  Great 
Britain.  As  to  electric  lighting,  it  is  hardly 
an  exaggeration  to  say  that  the  English 
legislation  of  1882,  with  its  limitation  of  twenty- 
one  years  for  franchises,  utterly  paralysed  that 
industry — a  paralysis  from  which  it  showed  no 
sign  of  recovery  until  1888,  when  the  franchise 
period  was  increased  to  forty-two  years.  As 
regards  both  these  industries,  my  country  has 
undoubtedly  been  left  far  behind  some  other 
countries  in  the  industrial  race ;  and,  in  my 
opinion,  this  is  largely  due  to  the  action  of 
the  legislature  and  of  the  municipalities  in 
endeavouring  to  enforce  too  rigid  conditions. 

But  why  were  these  restrictions  imposed   if 
they  were,  in  truth,  so  harmful  ?    Was  it  merely 


FRANCHISE  PERIOD  19 

that,  whilst  the  advantages  of  short  franchises 
were  perceived,  their  disadvantages  were  not 
at  first  foreseen  or  were  never  admitted?  Such 
an  explanation,  no  doubt,  partly  accounts  for 
the  English  method  of  controlling  private 
corporations ;  but  only  partly,  for  other  power- 
ful influences  have  been  at  work.  The 
advocates  of  municipal  ownership  have  great 
power  in  the  House  of  Commons,  and  their 
object  is  always  to  leave  a  door  open  for  the 
direct  management  of  municipal  monopolies. 
Long-period  franchises  would  obviously  post- 
pone the  possibility  of  municipal  ownership 
for  a  long  time,  and  against  them  persistent 
opposition  has  been  maintained.  The  crippling^ 
of  the  electric  industries  of  England,  due  to 
the  short  period  of  the  franchises  granted,  is 
therefore,  in  my  opinion,  mainly  the  indirect 
result  of  the  desire  for  municipal  ownership 
on  the  part  of  the  civic  authorities  in  that/ 
country. 

There  is,  however,  another  method  of  attract- 
ing capital  besides  that  of  granting  long-period 
franchises.  At  the  termination  of  a  franchise 
period,  if  the  works  are  to  be  bought  com- 
pulsorily  by  the  civic  authorities,  they  must 
be  valued ;  and  in  England  the  method  of 
valuation  is  such  that  corporations  do  not  get 


20  PRIVATE  INDUSTRY 

compensation  for  either  formation  expenses  or 
initial  losses.  Private  proprietors  therefore 
object  strongly  to  this  damaging  blow  being 
inflicted  at  an  early  date.  But  there  appears 
to  be  no  reason  why  the  system  of  valuation 
should  not  be  such  as  to  afford  a  reason- 
able compensation  to  corporations  at  whatever 
date  they  are  bought  out.  With  short-period 
franchises,  combined  with  a  more  liberal 
system  of  valuation,  capital  might  be  attracted 
quite  as  certainly  as  by  the  existing  English 
system  of  long -period  franchises  adopted  for 

\  electric  lighting  works.     Unfortunately,   reform 
has  not  been  sought  in  this  direction. 

Before  leaving  this  subject,  one  strong 
objection  to  short -period  franchises  must  be 
briefly  mentioned.  Whenever  the  date  is 
reached  at  which  a  corporation  may  be  bought 
out  by  the  civic  authorities,  then  will  be  the 
moment  at  which  corrupt  influences  are  most 
likely  to  show  themselves ;  and  the  shorter 
the  franchise  period,  the  more  often  will  these 
dangerous  epochs  occur.  This,  no  doubt, 
affords  a  serious  argument  in  favour  of  long- 
period  franchises ;  although,  in  my  opinion, 
the  difficulty  would  best  be  met  by  permitting 
cities  to  buy  out  corporations  owning  franchises 

\a.t  all  times  under  a  reformed  system  of  valua- 


REASONABLE  PROFITS  21 

tion,  there  being,  therefore,   no  fixed  recurrent 
dates    at   which    the    demon    of   corruption    is 
especially  likely   to  be   roused.     This   question 
of  corruption  will,    however,    be  dealt  with   in  _, 
a  subsequent  lecture. 

But,  whatever  be  the  exact  terms  of  the 
franchises  granted  to  the  private  proprietors 
of  municipal  monopolies,  it  is,  at  all  events,^ 
folly  to  trust  to  private  enterprise,  and  at  the  f 
same  time  to  strangle  it  at  its  birth.  It  is, 
in  fact,  impossible  to  obtain  ultimately  all  the 
benefits  due  to  rapid  commercial  progress, 
stimulated  by  large, profits  to  shareholders,  as 
well  as  all  the  possible  immediate  benefits  due 
to  rigid  terms  as  to  price  and  rent.  A  com- 
promise must  be  made  between  these  antagon- 
istic ideals,  and  that  compromise  must  be  one 
which  is  fairly  satisfactory  to  the  investing 
public.  Justice  does  not  demand  any  special 
consideration  being  shown  either  to  promoters 
or  to  capitalists  as  such.  But  our  policy  must 
be  influenced  by  the  fact  that  by  shutting 
them  off  from  all  chance  of  earning  reasonable 
profits,  we  may  thus  injure  rather  than  benefit1 
all  other  classes. 

The  regulation  of  the  private  ownership  of 
municipal  monopolies  is,  therefore,  a  matter 
of  considerable  difficulty,  and  in  England,  at 


22  PRIVATE  INDUSTRY 

all  events,  it  leaves  much  to  be  desired.  But 
English  experience  does  indicate,  it  appears 
to  me,  that  even  with  the  existing  defective 
legislation,  fairly  satisfactory  results  can  be 
obtained  by  trusting  the  management  of 
municipal  monopolies  to  private  corporations 
with  franchises  for  short  periods.  In  Massa- 
chusetts some  excellent  legislation  on  this 
subject  has  been  passed ;  but  even  here  pro- 
bably more  remains  to  be  done ;  whilst  a  wide 
field  is  open  to  the  reformer  in  other  States. 
It  is  very  desirable  that  more  interest  should  be 
aroused  on  this  side  of  the  question,  because  this 
would  probably  result  in  private  industry  being 
everywhere  more  wisely  controlled. 

Advanced  socialists  will  no  doubt  declare 
that  they  care  nothing  for  reforms  which  are 
not  avowedly  communistic ;  for  they  hope  to 
see  all  industry  owned  and  managed  by  the 
representatives  of  the  people.  But  every  sane 
and  temperate  man,  even  if  he  be  a  socialist, 
must  see  that  private  industry  will  not  be 
abolished  entirely  for  many  years  to  come. 
Individualists,  on  the  other  hand,  hold  that, 
as  regards  most  industries,  private  enterprise 
will  always  produce  the  best  results.  In  fact, 
whether  we  think  that  private  industry  is  to 
remain  with  us  for  ever,  or  whether  we  think 


PRELIMINARY  ENQUIRY  23 

that  it  is  only  to  be  tolerated  as  a  necessary 
step  in  social  evolution,  we  must  agree  that  its 
proper  control  will  for  a  long  time  be  a  subject 
of  great  practical  importance.  The  advocates 
of  municipal  ownership  now  draw  the  larger 
audiences  ;  but  whoever  will  play  the  less  con- 
spicuous part  of  endeavouring  to  improve  the 
methods  of  regulating  private  industry  will  be 
doing  admirable  service  for  his  country. 

Thus  far  I  have  endeavoured  to  point  out 
that  there  are  two  methods  of  reform  open  to 
us  when  dealing  with  municipal  monopolies 
in  private  hands.  There  is  the  conservative 
method  of  reforming  the  control  over  private 
industry ;  and  there  is  the  drastic  method  of 
municipal  ownership,  as  it  is  not  too  aptly 
termed.  The  second  of  these  methods,  that 
of  municipal  ownership,  must  now  be  con- 
sidered. But  this  preliminary  enquiry  con- 
cerning the  control  'of  municipal  monopolies 
has  been  necessary  in  order  to  indicate  that, 
if  it  should  appear  as  regards  any  industry* 
that  municipal  ownership  would  be  an  improve- 
ment on  private  industry  as  now  conducted, 
it  does  not  follow  that  it  would  be  better 
than  private  industry  controlled  by  regulations 
which  the  nation  might  adopt  at  any  time  if  it 
saw  fit. 


24  LOCAL  TAXATION 

MUNICIPAL  OWNERSHIP  AND 
LOCAL  TAXATION 

As  regards  many  social  questions,  the  argu- 
ments for  and  against  any  proposed  reform 
can  be  set  forth  like  the  briefs  of  opposing 
counsel  when  pleading  before  a  court.  But, 
in  the  case  of  municipal  ownership,  almost 
every  subject-matter  for  discussion  has  been 
used  in  the  foundations  of  the  arguments  of 
those  who  are  pleading  both  for  and  against  this 
method  of  dealing  with  municipal  monopolies. 
First  to  take  the  whole  case  on  one  side,  and 
then  to  take  the  whole  case  on  the  other,  would 
involve  a  considerable  amount  of  repetition ; 
and  it  is,  therefore,  more  convenient  to  discuss 
one  subject  after  another,  and  to  consider  the 
bearing  of  each  on  the  whole  question.  And 
the  first  subject  here  to  be  dealt  with  will  be 
that  of  finance. 

The  finances  of  municipal  industry,  though  it 
/  certainly  is  not  the  most  important  topic  to  be 
considered,  is  the  part  of  this  controversy 
which  is  most  discussed  in  England.  Questions 
connected  with  civic  purity  and  sanitation  are, 
however,  in  my  judgment,  more  important. 


FINANCIAL  QUESTIONS  25 

Moreover,  although  money  affords  the  best 
method  of  weighing  human  desires  for  goods 
for  immediate  consumption,  and,  although 
economists  are  right,  therefore,  in  making 
price  a  subject  to  be  treated  at  length ;  yet, 
when  weighing  either  future  benefits  against 
present  benefits,  or  precautions  as  to  health 
and  morality  against  other  immediate  wants, 
price  is  a  very  fallible  guide.  These  con- 
siderations, which  tend  to  lessen  the  importance 
of  finance  in  all  social  questions,  are  not, 
however,  the  only  reasons  why  other  subjects 
should  take  a  more  leading  place  as  regards 
municipal  ownership ;  for  the  discussion  on 
which  we  are  about  to  enter  will  show  that 
no  very  substantial  gains  or  losses  have  been 
sustained  by  England  as  a  whole  because  of  the 
indulgence  of  its  cities  in  municipal  industry. 
This  is,  however,  somewhat  anticipating  the 
result  of  that  discussion.  But  it  is  very 
important  to  note  from  the  first  that  any  con- 
clusions which  may  be  arrived  at  from  a  study 
of  English  municipal  statistics  can  only  be 
held  to  be  sound  in  so  far  as  the  experiences 
of  England  may  be  taken  as  a  sure  guide, 
and  on  the  assumption  that  municipal  owner- 
ship is  not  to  be  adopted  to  a  greater  extent 
than  it  is  now  practised  in  England.  If 


26  LOCAL  TAXATION 

more  industries  were  municipalised  than  is 
usually  the  case  in  England,  the  financial 
effects  might  become  very  important. 

Two  questions  were  suggested  as  being  those 
most  likely  to  bring  us  quickly  to  the  heart  of 
this  controversy ;  and  of  these,  the  second  was 
as  to  when  it  would  be  best  in  the  interests 
of  the  community  at  large  that  municipal 
services  should  be  undertaken  by  employees 
in  the  direct  pay  of  the  civic  authorities? 
In  other  words,  when  is  direct  employment 
advisable?  As  regards  municipal  industry  in 
England,  it  is  nearly  all  carried  on  by  directly 
employed  labour.  It  is  true  that,  in  the  Govern- 
ment statistical  returns,  there  are  included 
certain  street  railways  leased  out  to  private  cor- 
porations ;  but  these  will  be  always  omitted  in 
any  figures  relating  to  municipal  industry  here 
quoted.  We  shall  therefore  be  dealing  with 
industry  entirely  or  almost  entirely  operated 
by  direct  employment.  It  is  true  that  most 
of  these  industries  were  bought  from  private 
corporations  and  that  the  works  themselves 
were  for  the  most  part  built  by  private  pro- 
prietors ;  and  also  that  some  works  have  been 
built  or  added  to  by  contract  for  the  muni- 
cipalities now  owning  them.  Thus  very  few 
^municipal  works  in  England  both  have  been 


DIRECT  EMPLOYMENT  27 

built  and  are  now  being  operated  by  directly^ 
employed  municipal  labour ;  and  unfortunately 
these  few  cannot  be  separated  from  the  rest. 
If  they  could  have  been  studied  separately,  the 
financial  results  thus  obtained  might  have 
been  more  conclusive  than  those  now  obtain- 
able. As  it  is,  all  we  can  do  if  we  wish  to 
study  the  financial  results  of  direct  employment 
in  England  is  to  make  these  statistics  of  the 
municipal  industries  of  that  country  form  the 
basis  of  our  enquiry.  In  other  words,  we  can, 
and  we  must,  study  the  finances  of  direct 
employment  and  of  municipal  ownership  at 
one  and  the  same  time. 

The  imperative  necessity  of  regarding  all 
sides  of  social  questions  has  already  been 
insisted  on,  and  nowhere  has  this  precaution 
been  more  flagrantly  neglected  than  in  the 
popular  discussions  concerning  the  finances  of 
municipal  ownership.  Hundreds  of  extracts 
from  English  newspapers  might  be  quoted, 
each  pointing  to  the  profit  made  in  a  particular 
municipal  enterprise,  the  inference  being  drawn 
that  local  taxation  had  in  consequence  been 
thus  reduced  :  and  this,  apparently,  without  a 
thought  having  been  given  by  the  writers  as  to 
the  exact  meaning  to  be  attached  to  these  state- 
ments. Do  they  point  to  a  comparison  with 


~ 
UN»VERSITY  I 


28  LOCAL  TAXATION 

a  state  of  affairs  when  the  cities  in  question 
had  no  street  railways,  if  that  were  the  profit- 
making  industry?  Obviously  not;  because 
street  railways  would  have  been  built,  whether 
municipalised  or  not.  The  meaning  of  any 
such  statement  must  therefore  be  that  a  certain 
city  has  made  a  profit  of  so  many  dollars  by 
a  municipal  industry  ;  whilst,  had  the  industry 
in  question  remained  in  private  hands,  no  such 
sum  would  have  found  its  way  into  the  muni- 
cipal treasury,  and  taxation  would  not  thus 
have  been  reduced. 

Assuming  this  to  be  the  meaning  intended 
to  be  conveyed  by  these  statements,  can  they 
be  accepted  as  giving  an  accurate  representa- 
tion of  the  facts?  In  Birmingham,  for  example, 
the  street  railways  were  until  recently  managed 
by  a  private  corporation,  which  paid  a  con- 
siderable rent  to  the  city  for  its  privileges. 
The  franchise  period  expired,  and  the  muni- 
cipality had  to  choose  between  again  leasing 
out  the  street  railways  to  a  private  corporation 
and  managing  them  itself.  The  decision  was 
in  favour  of  municipal  management,  and  the 
city  itself  began  to  make  a  profit  on  its  newly 
acquired  industry.  But  it  cannot  be  said 
that  taxation  was  thus  reduced  by  an  amount 
equal  to  this  profit;  for  the  fact  that  a  rent 


GAINS  AND  PROFITS  29 

was  no  longer  receivable  must  be  taken  into 
account.  Possibly  the  point  at  issue  may  be 
made  more  clear  by  means  of  figures.  Let 
it  be  assumed  that  a  private  corporation  was 
paying  a  rent  to  a  city  of  $200,000  a  year  for 
a  street  railway  franchise  ;  that  this  industry 
was  municipalised ;  and  that  subsequently  the 
city  only  made  a  profit  of  $100,000 ;  that  is 
$100,000  less  than  the  amount  previously 
received  in  the  form  of  rent.  Should  we  say 
that  the  city  was  making  a  profit  of  $100,000  a 
year  by  the  street  railways  it  had  municipalised  ? 
Or  should  we  say  that  it  was  losing  a  like 
amount  by  that  venture  ?  Both  statements  could 
be  logically  justified. 

The  truth  is  that  the  English  language  is 
deficient  in  words  for  our  purposes.  But,  to 
make  the  best  of  those  we  have,  the  figure  indi- 
cating the  balance  of  the  working  account  of  a 
municipal  industry  will  here  be  called  the  profit 
or  the  deficit,  as  the  case  may  be  ;  whilst  the 
figure  indicating  the  comparative  decrease  or 
increase  of  the  total  financial  burden  falling  on 
the  citizens  in  consequence  of  the  municipalisa- 
tion  of  an  industry  will  be  called  the  gain  or  the 
loss,  as  the  case  may  be.  Thus,  any  increase  of 
expenditure  and  any  income  foregone  as  the  result 
of  a  municipal  industry  being  undertaken  must  be 


30  LOCAL  TAXATION 

deducted  from  its  profits  in  order  to  ascertain  the 
gain.  This  is  not,  it  must  be  admitted,  a  very 
happy  choice  of  words  ;  for  it  is  necessary  to  say, 
as  regards  the  imaginary  case  just  quoted,  that 
the  city  was  making  at  the  same  time  from  its 
venture  both  a  profit  and  a  loss  of  $100,000  a 
year!  Any  suggestion  as  to  a  more  suitable 
phraseology  will  be  gladly  accepted.  But  if  it 
were  asserted  that  a  city  showed  a  profit  on  its 
industries,  whilst  the  ventures  in  question  ought 
to  be  regarded  as  being  run  at  a  loss  to  the  city 
because  of  rents  larger  than  the  profits  having 
been  foregone,  here  the  words  profit  and  loss  do 
not  appear  out  of  place,  although  used  as  defined 
above. 

Accepting  the  definitions  of  these  words,  it  will 
at  once  be  admitted  that  the  question  of  gain 
and  loss  is  far  more  important  than  the  question 
of  profit  and  deficit*  Yet  it  is  the  profits  of 
municipal  industries  to  which  reference  is  per- 
petually being  made.  How,  then,  are  we  to 
arrive  at  the  more  important  figure  representing 
the  gain,  or  the  net  effect  on  the  community 
generally?  No  very  satisfactory  answer  to  this 
question  has  as  yet  been  suggested. 

One  method  of  arriving  at  the  desired  result, 
which  at  first  sight  appears  to  be  very  simple,  is 
to  compare  the  taxation  in  cities  where  there  is 


STATISTICAL  RESULTS  31 

much  municipal  industry  with  the  taxation  in 
cities  where  there  is  but  little.  If  it  could  be 
proved  that  local  taxation  always  varied  inversely 
with  the  amount  of  municipal  industry  under- 
taken, then  it  would  be  safe  to  conclude  that 
municipal  industry  reduced  the  taxation  or  was 
a  gain  in  this  respect.  Many  doubts  and  diffi- 
culties, however,  beset  this  enquiry :  the  first  to 
be  met  with  being  the  choice  of  fair  lists  of  cities 
for  comparison.  Only  one  single  investigation 
of  this  kind,  which  has  been  made  in  an  impartial 
and  scientific  manner,  is  known  to  me ;  and  the 
result  of  this  investigation  shows  that  municipal^ 
industry  appears  to  be  associated  in  England 
neither  with  high  nor  with  low  local  taxation.1/ 
It  is,  however,  somewhat  puzzling  at  first  to  find^ 
that  an  increase  in  the  municipal  industry  in  any 
city  is  quite  undoubtedly  associated  with  an^ 
increase  in  taxation.  (Citizens  may  therefore 
with  confidence  look  forward  to  an  immediate 
increase  in  their  local  taxation  if  the  city  in  which 
they  dwell  begins  to  tread  the  path  of  municipal 
industr^.  This  apparent  contradiction  may  be 
explained  in  more  ways  than  one.  It  may  be 
that  the  ultimate  gain  cancels  the  initial  loss,  and 
that  in  this  way,  on  the  average,  no  gain  or  loss 

1  Miss   Alice   Lee,  Economic  Journal^   September   1903, 
p.  424. 


32  LOCAL  TAXATION 

on  municipal  industry  is  made.  Or  it  may  be 
that  the  same  spirit  which  makes  civic  authorities 
municipalise  many  industries  induces  them  also 
to  be  either  progressive  or  extravagant  in  other 
directions.  Thus  this  method  is  surrounded  by 
difficulties  ;  the  results  are  somewhat  difficult  to 
interpret ;  and,  moreover,  no  account  is  taken  of 
the  relative  level  of  prices  in  municipal  and  in 
private  industry.  We  are  therefore,  perhaps,  not 
justified  in  accepting  the  conclusions  arrived  at, 
as  more  than  an  indication  that  English  cities 
make  neither  great  gains  nor  great  losses  by 
\their  industrial  ventures.  This  is  certainly  not  a 
satisfactory  conclusion  to  arrive  at,  and  it  would 
be  most  desirable,  if  possible,  to  find  some  more 
certain  method  of  ascertaining  the  financial  effect 
of  municipal  ownership. 


LECTURE   II 

MUNICIPAL  STATISTICS 

IN  my  last  lecture  I  began  to  deal  with  the 
financial  aspect  of  municipal  ownership,  which 
is,  in  truth,  the  most  unsatisfactory  part  of  this 
whole  controversy.  In  it  we  appear  all  the 
time  to  be  sailing  in  a  fog,  through  which, 
I  fear,  I  cannot  pilot  you  to  any  very  secure 
resting-place.  What  we  wish  to  ascertain  is 
whether  English  municipalities  gain  by  their 
municipal  industries,  not  merely  whether  they 
make  a  profit  thereon.  The  method  of  attempt- 
ing to  arrive  at  a  conclusion  on  this  point 
already  discussed,  namely,  the  consideration  of 
the  question  whether  cities  where  municipal 
industry  is  extensively  practised  are  taxed 
more  or  less  heavily  than  those  which  trust 
largely  to  private  enterprise,  was  found  to  be 
full  of  difficulties  ;  and  it  is,  perhaps,  wise  to 
quote  the  results  only  as  indicating  that  no 
great  gains  or  losses  result  from  municipal 

33  E 


34  MUNICIPAL   STATISTICS 

industry   in   England.     We  are   therefore    still 
groping  our  way  in  the  fog. 

Another  possible  method  of  attacking  this 
problem  is  to  ascertain,  in  the  first  place, 
what  are  the  profits  made  by  a  city  out  of  its 
municipal  ventures ;  and,  in  the  second  place, 
what  are  the  sources  of  income  which  it  fore- 
goes in  consequence  of  its  abandonment  of 
private  industry ;  and,  finally,  by  deducting 
this  foregone  income  from  the  profits,  to  obtain 
the  actual  net  gain  to  the  city.  This  is  no 
doubt  the  commonest  way  of  trying  to  solve 
this  problem,  the  necessity  of  making  any 
deductions  from  the  profits  being,  however, 
frequently  forgotten  by  the  advocates  of  a 
forward  municipal  policy.  An  attempt  will 
now  be  made,  without  any  such  lapse  of 
memory,  to  arrive  at  definite  conclusions  by 
this  method. 

Manchester  makes  so  many  thousand  dollars 
a  year  out  of  its  gas-works,  and  why  should 
not  we  do  the  same  ?  This  is  the  most  elemen- 
tary form  of  the  usual  financial  argument  in 
favour  of  municipal  ownership.  But  even  if 
nothing  else  had  to  be  said,  it  must  be  admitted 
that,  in  all  social  questions,  averages  are  more 
trustworthy  as  guides  than  single  instances. 
We  see  sometimes  in  fruit  shops  that  only  the 


AVERAGE    RESULTS  35 

best  of  the  fruit  is  exposed  to  view  at  the  top 
of  the  baskets,  it  being  evidently  intended  that 
the  simple-minded  customer  should  judge  the 
whole  by  these  especially  selected  specimens. 
Now  the  methods  of  such  vendors  are  not 
wholly  dissimilar  to  those  adopted  by  those 
advocates  of  municipal  ownership  who  are 
constantly  harping  on  the  profits  of  municipal 
gas-works,  which  are  no  doubt  considerable, 
whilst  maintaining  a  discreet  silence  with 
regard  to  the  net  profits  of  English  electrical 
lighting  works,  merely  because  they  happen  to 
be  a  negative  quantity.  On  the  other  hand, 
if  we  could  conceive  the  object  of  a  salesman 
being  to  prevent  the  public  from  buying  his 
goods,  the  least  tempting  fruit  would  be 
exposed  to  sight ;  and  this  would  be  similar 
to  the  practices  of  certain  opponents  of  muni- 
cipal industry  who  do  nothing  but  harp  on 
the  subject  of  municipal  failures.  If  selected 
specimens  cannot  be  trusted  in  the  buying 
of  fruit,  this  is  equally  true  in  judging  of 
municipal  industries ;  because  each  industry 
is  subject  to  exceptional  conditions,  and  the 
errors  thus  introduced  can  only  be  eliminated 
by  considering  the  average  of  the  results  of  a 
considerable  number  of  industries. 

This  point  may,  perhaps,  be  illustrated  by  a 


36  MUNICIPAL   STATISTICS 

reference  to  English  gas-works,  on  which  the 
profits,  as  already  remarked,  have  been  con- 
siderable. The  amount  of  the  profit  made 
obviously  depends  on  the  price  charged  for  the 
gas ;  and,  since  this  industry  is  practically  a 
monopoly,  this  price  is  regulated  to  a  large 
extent  by  custom  or  example.  English  private 
gas-works  have  very  unwisely  been  granted 
perpetual  franchises ;  and  on  this  account  it 
is  not  improbable  that  they  are  now  charging 
prices  above  what  may  be  described  as  the 
competition  level,  with  a  corresponding  increase 
of  profits.  It  follows  that  if  English  muni- 
cipalities have  been  at  all  influenced  by  the 
example  set  by  these  private  corporations  as 
regards  the  price  charged  for  gas,  their  profits 
also  will  have  been  swollen  in  like  manner : 
an  influence  not  felt  in  English  municipal 
electrical  works,  because  perpetual  franchises 
have  not  been  granted  to  the  owners  of  private 
electrical  enterprises.  The  profits  of  municipal 
gas-works  taken  separately  ought  not,  there- 
fore, to  serve  us  as  a  guide. 

On  similar  grounds,  the  consideration  of 
the  profits  obtained  in  single  cities  should  be 
barred.  We  must  not  pick  and  choose  our 
examples ;  because  the  exceptional  conditions 
obtaining  in  any  one  city  may  modify  the 


PROFITS   IN   ENGLAND  37 

results  there  obtained  so  as  to  make  it 
impossible  for  other  cities,  where  no  such 
exceptional  advantages  exist,  to  follow  its 
example.  Good  results  in  municipal  industry 
may,  for  example,  be  partly  attributable  to  ex- 
ceptional business  capacity  on  the  part  of  a 
local  governing  body.  But  town  councillors 
who  claimed  to  possess  this  exceptional  advan- 
tage— that  is,  to  be  wiser  than  the  average  of 
other  town  councillors — would  certainly  gener- 
ally be  held  by  others  to  be  in  reality  unwise 
themselves.  They  should  not  refuse  to  be 
guided  by  averages,  and  should  avoid  the 
consideration  of  separate  cities  or  industries; 
and  we  should  do  the  same. 

Looking,  therefore,  only  to  the  average  financial 
results  of  municipal  ownership,  possibly  the  best 
way  to  indicate  in  the  fewest  words  the  general 
situation  in  England  is  to  liken  the  whole 
municipal  industry  of  that  country  to  a  large 
industrial  corporation.  Judging  by  a  return 
made  to  Parliament  in  1902,  the  capital  put 
into  this  great  municipal  venture  at  that  date 
was  $600, ooo, ooo  *;  whilst  the  interest  paid  to 
the  shareholders,  to  continue  the  simile,  was 
nearly  $23,ooo,ooo,2  or  a  little  under  4  per  cent. 

1  ,£120,000,000.  Round  numbers  only  are  given  in  these 
lectures.  2  ,£4,500,000. 


38  MUNICIPAL  STATISTICS 

on  the  capital.  But  it  must  not  be  supposed 
that  this  sum,  which  I  have  likened  to  the 
interest  to  shareholders,  found  its  way  un- 
diminished  into  the  municipal  treasuries.  In 
establishing  these  industrial  concerns,  not  only 
had  large  debts  been  incurred,  the  interest  on 
which  had  to  be  provided  out  of  the  gross 
profits ;  but  sinking  funds  had  also  to  be 
provided,  it  being  obligatory  in  England  that 
all  municipal  industrial  debts  should  be  paid  off 
in  a  given  time.  Thus  less  than  $2, 000,000 1 
went  to  the  relief  of  taxation  :  a  sum,  however, 
which  will  increase  continually  as  the  debts 
are  liquidated,  until  in  time  English  munici- 
palities, so  it  may  be  urged,  will  enjoy  the  full 
income  of  $23, ooo,  ooo2  without  any  deduction 
for  interest  or  sinking  funds. 

It  should,  however,  be  noted  that  if  none 
of  the  debts  had  been  liquidated  at  the  date 
of  this  return,  the  interest  and  charge  for 
sinking  funds  on  the  whole  capital  provided 
would  have  been  more  than  the  $23,000,000 2 ; 
and  a  small  net  deficit  would  have  been  shown, 
instead  of  this  small  net  profit  of  about 
$2, ooo, ooo. l  In  other  words,  in  so  far  as  these 
average  results  in  England  may  be  taken  as 
a  guide,  we  ought  to  anticipate,  when  a  new 
1  ,£360,000.  2  ^4,500,000. 


PROBABLE   DEFICIT  39 

municipal  industry  is  being  established,  that 
a  slight  deficit  would  at  first  be  made :  a 
deficit  which  would  be  converted  into  a  fairly 
substantial  profit  some  forty  years  afterwards, 
when  the  debts  were  all  liquidated. 

Thus  painted  the  financial  picture  is  not 
unpleasant  to  look  at;  for,  although  it  appears 
that  a  city  establishing  a  municipal  industry 
ought  to  anticipate  a  probable  deficit,  yet  this 
deficit  would  probably  be  so  small  that  the 
citizens  ought  to  be  willing  to  run  this  risk 
for  the  sake  of  material  future  profits.  If  all 
my  fellow-countrymen  were  to  be  convinced 
that  each  new  municipal  venture  would  prob- 
ably add  to  the  immediate  burden  of  local  taxa- 
tion, this  movement  would  no  doubt  receive 
far  less  support  than  it  does  at  present,  even 
though  this,  in  truth,  afforded  no  proof  that 
municipal  industry  was  on  the  whole  financially 
disadvantageous.  There  are,  however,  many 
other  circumstances  which  ought  to  be  taken 
into  account,  some  of  which  tend  to  brighten 
this  picture,  but  more  to  tarnish  it.  As  an 
example  of  the  former,  there  will  be  found 
amongst  the  enterprises  included  in  this  return 
such  services  as  baths,  wash-houses,  and 
burial  grounds ;  which  certainly  were  not 
undertaken  with  any  idea  of  making  a  profit. 


4o  MUNICIPAL   STATISTICS 

But  even  if  these  items  are  entirely  omitted, 
the  interest  on  the  remainder  is  only  raised 
to  about  4  per  cent,  on  the  total  capital  pro- 
vided. On  the  other  hand,  English  municipal 
accounts,  although  they  are  on  the  whole  well 
kept,  have  been  subject  to  telling  criticism, 
with  the  object  of  proving  that  the  profits  of 
these  municipal  ventures  are  not  really  so 
high  as  they  are  thus  shown  to  be. 

These  questions  connected  with  accounts  are, 
however,  too  technical  here  to  be  dealt  with 
at  length ;  and  only  the  most  important  of 
all  these  criticisms  will  be  mentioned — namely, 
that  with  regard  to  the  depreciation  in  the 
value  of  municipal  property.  According  to 
the  above-mentioned  return,  the  amount  set 
aside  to  meet  this  depreciation  is  less  than 
^th  per  cent,  on  the  total  capital ;  and 
it  can  hardly  be  denied  that  this  is  very 
inadequate.  Municipal  authorities  may,  how- 
ever, rightly  urge  that  the  citizens  of  to-day 
are  paying  off  the  whole  debts  incurred  in 
starting  these  enterprises ;  and  that  they  are 
in  effect  presenting  these  industrial  works  as 
a  free  gift  to  posterity.  Posterity,  they  may 
add,  has  no  right  to  grumble  if  called  upon, 
when  possessed  of  these  free  gifts,  to  put  them 
in  good  repair,  and  the  present  generation 


DEPRECIATION  41 

is  not,  therefore,  under  any  obligation  to  create 
a  large  depreciation  fund.  This  is  sound 
enough.  But  those  who  use  such  arguments 
in  effect  admit  that  further  capital  expenditure 
for  these  industrial  concerns  will  be  necessary 
in  future,  and  that,  consequently,  the  gross 
profit  of  $23,000,000  will  never  find  its  way 
undiminished  into  the  municipal  treasuries  of 
posterity.  If  full  commercial  depreciation  were 
charged,  as  it  ought  to  be,  at  all  events,  for  the 
purposes  of  this  argument,  it  would  then  be 
seen  that  the  gross  profits  to  be  anticipated  in 
the  future  would  be  materially  less  than  the 
figure  above  mentioned. 

But  even  if  a  careful  investigation  should 
prove  that  English  municipal  industries  will 
in  future  be  a  source  of  considerable  profit  to 
the  cities  concerned — this  is  certainly  not  the 
case  at  present — yet  this  would  tell  us  nothing 
whatever  as  to  whether  these  cities,  in  truth, 
gain  or  lose  by  these  enterprises.  Whatever 
certain  advocates  of  municipal  ownership  may 
do,  we  must  not  forget  to  look  at  the  other 
side  of  the  question,  and  to  consider  what 
sources  of  income  these  cities  have  foregone 
by  transferring  these  industries  from  private 
to  public  ownership. 

The  circumstances  which   have  to  be  taken 

F 


42  MUNICIPAL  STATISTICS 

into  consideration  in  fairly  estimating  the 
gains  and  losses  due  to  municipal  ownership 
are  too  numerous  all  to  be  mentioned  here. 
Many  of  them  arise  from  the  fact  that  a  city 
has,  as  it  were,  two  pockets  for  money  —  an 
industrial  pocket,  and  an  administrative  pocket ; 
and  it  appears  at  first  sight  to  matter  but  little 
which  pocket  is  used.  Town  councillors,  who 
have  established  some  industrial  enterprise, 
like  to  show  good  results ;  and,  when  it  can 
be  so  arranged,  they  naturally  desire  to  avoid 
drawing  money  from  the  industrial  pocket. 
The  sin  may  be  but  a  trifling  one,  for  no  one 
may  be  directly  injured,  the  result  merely 
being  that  the  causes  of  any  industrial  loss, 
namely,  unavoidable  failures  or  honest  blunders, 
are  kept  in  a  subdued  light.  Councillors  are, 
after  all,  human  beings ;  and,  where  all  are 
thus  tempted,  some  will  fall.  As  a  single 
instance  of  the  possible  effect  of  this  human 
weakness,  the  lenient  assessment  of  municipal 
property  may  be  mentioned.  A  tax  on 
municipal  industries  is  merely,  it  may  be 
thought,  a  useless  transfer  of  money  from  the 
industrial  to  the  administrative  pocket ;  and  a 
very  inconvenient  transfer  when  the  contents 
of  the  industrial  pocket  are  running  low. 
Thus  a  city's  industrial  property  may  be  more 


DEDUCTIONS   FROM   PROFITS      43 

lightly  assessed  in  England  than  if  that  same 
property  had  remained  in  the  hands  of  a  private 
corporation.  But,  where  this  is  the  case,  the 
additional  tax,  which  would  have  been  received 
from  the  private  corporations  had  they  re- 
mained as  the  owners,  must  be  deducted  from 
the  profits  shown  in  the  city's  industrial 
accounts  in  order  to  ascertain  the  true  gain  to 
the  city  resulting  from  its  municipal  enter- 
prises. In  England  this  is  probably  not  a 
very  important  point ;  but  if  I  am  right  in 
supposing  that  municipal  property  is  not  taxed 
in  the  United  States,  here  this  may  be  a  very 
important  deduction  from  municipal  profits, 
and  the  point  is  one  which  must  by  no  means 
be  overlooked.  Anyhow,  it  affords  a  convenient 
illustration  of  the  many  difficulties  which  are 
met  with  in  comparing  the  finances  of  municipal 
and  private  industries. 

Several  other  circumstances  might  also  be 
mentioned  which  in  like  manner  throw  a 
doubt  on  the  validity  of  accepting  municipal 
profits  as  being  an  indication  of  municipal 
gains  :  as,  for  example,  the  possibility  of  charg- 
ing the  administrative  account  too  highly  for 
the  lighting  of  public  places,  or  of  including 
in  that  account  the  capital  expenditure  for  the 
widening  of  streets  for  street  railways.  All  but 


44  MUNICIPAL  STATISTICS 

one  of  these  possible  criticisms  will  be  passed 
over  in  silence  ;  that  one  being  so  important 
that  it  must  be  briefly  considered.  For  the 
purpose  of  illustrating  the  point  in  question, 
take  the  case  of  a  landowner  who  owns  a  farm 
which  has  just  fallen  into  his  hands  at  the 
termination  of  a  lease,  and  who  is  doubting 
whether  or  not  he  had  better  farm  the  land 
himself.  In  these  circumstances  there  certainly 
never  was  a  landowner  so  stupid  as  to  forget 
the  fact  that,  by  farming  the  land  himself,  he 
would  forego  the  rent  he  might  obtain  from  a 
farmer  if  he  were  instead  again  to  lease  out  the 
farm.  Yet  it  seems  that  a  blunder  closely  akin 
to  this  is  constantly  being  made  with  regard 
to  municipal  ownership,  the  rent  which  might 
have  been  obtained  from  private  managers 
being  overlooked.  Taking  street  railways  as  a 
convenient  example,  they  are  divided  into  two 
classes  in  the  Parliamentary  return  of  1902, 
already  mentioned,  namely,  those  owned  and 
worked  by  municipalities,  and  those  owned 
by  municipalities  and  leased  out  to  private 
corporations  for  working.  These  returns  un- 
doubtedly indicate  that  those  civic  authorities 
who  lease  out  their  street  railways  to  private 
corporations  make  a  larger  gross  profit  on  a 
given  capital  than  those  who  work  them 


STREET   RAILWAY   RENTS         45 

themselves  ;  the  gross  profit  being  equivalent 
to  the  net  profit  which  may  be  anticipated 
when  all  the  debts  are  liquidated.  As  to 
the  immediate  results  the  case  is  not  so  clear ; 
but  the  figures  indicate  that  a  city  should 
expect  to  obtain,  whilst  the  debts  remained 
unredeemed,  a  net  profit  of  about  ^ths  per 
cent,  on  the  capital,  by  working  its  own 
railways ;  whilst  by  leasing  them  out  it  might 
expect  to  make  about  2  per  cent.,  provided 
that  the  same  conditions  held  good  in  the 
two  cases  as  to  sinking  funds.  But  if  a  city 
only  makes  less  than  i  per  cent,  by  municipal 
management,  whilst  it  might  have  made  2 
per  cent,  by  leasing,  may  we  not  fairly  say  it 
is  losing  over  i  per  cent,  by  its  municipal 
venture?  Such  calculations  are  untrustworthy 
for  various  reasons ;  but  we  may,  at  all  events, 
fairly  conclude  that  the  fact  that  English  muni- 
cipally-managed street  railways  are  making  a 
profit  is  consistent  with  the  belief  that  English 
citizens  would  have  been  less  heavily  taxed 
had  none  of  the  street  railways  been  worked 
by  the  direct  employment  of  municipal  labour. 
As  to  the  other  industries  which  are  managed 
by  civic  authorities  in  England,  rents  could  in 
many  cases  have  been  drawn  from  private  cor- 
porations had  they  been  granted  the  necessary 


46  MUNICIPAL  STATISTICS 

franchises  enabling  them  to  undertake  the 
management ;  though,  it  is  true,  we  have  no 
means  whatever  of  estimating  how  large  these 
rents  would  have  been.  No  doubt,  as  regards 
certain  industries,  had  they  not  been  muni- 
cipalised, they  would  have  been  managed  by 
private  corporations  with  perpetual  franchises 
rent  free,  the  English  law  being  what  it  now 
is ;  and  the  cities  in  question  would  have  been 
in  receipt  of  no  income  from  them.  But  under 
a  reformed  system  of  legislation  with  regard  to 
private  industry,  we  may  safely  assume  that  a 
very  considerable  sum  would  have  been  flowing 
in  the  form  of  rent  from  private  corporations 
into  the  municipal  treasuries  had  no  muni- 
cipal industry  existed ;  and  this  sum  ought 
to  be  deducted  from  the  municipal  profits  in 
order  to  estimate  the  advantages  or  dis- 
advantages of  municipal  industry  compared 
to  well-regulated  private  industry. 

Accepting  the  foregoing  as  being  the  results 
of  a  study  of  English  municipal  statistics,  an 
endeavour  must  now  be  made  to  draw  general 
conclusions  therefrom.  Judging  by  average 
results,  it  was  seen  a  city,  when  starting  any 
new  municipal  venture,  ought  to  expect  to 
make  a  small  deficit  as  long  as  the  debt 
remained  unredeemed,  and  to  have  to  make 


GAIN   NOT   PROBABLE  47 

good  this  deficit  by  additional  taxation.  It 
was  also  seen  that,  not  only  would  this 
anticipated  deficit  probably  be  larger  than  the 
Government  returns  appear  to  indicate,  but 
that,  in  order  to  ascertain  what  would  be  the 
loss  at  first  in  consequence  of  the  abandon- 
ment of  the  system  of  private  industry,  the 
rent  which  might  have  been  drawn  from  a 
private  corporation  must  be  added  to  that 
deficit  to  ascertain  the  loss :  a  rent  which, 
judging  from  the  average  results  of  English 
street  railways,  would  amount  to  2  per  cent, 
on  the  total  capital.  English  statistics,  there- 
fore, do  not  disprove,  and  may,  it  appears 
to  me,  be  quoted  as  giving  some  support 
to  the  view  which  I  hold,  namely,  that  English 
cities  have  increased  the  immediate  burden  of 
taxation  by  their  municipal  ventures  by  over 
i  per  cent,  on  the  capital  sunk  thereon.  This 
conclusion  will,  perhaps,  be  readily  accepted 
until  it  is  seen  what  further  deductions  can 
be  made  from  it.  The  sinking  funds  which 
English  cities  are  obliged  to  find  for  the 
redemption  of  their  industrial  debts  amount  to 
a  little  more  than  i  per  cent,  on  the  capital 
thus  sunk ;  and  if  it  is  true  that  the  taxation 
is  increased  by  a  like  amount  in  consequence 
of  these  ventures,  it  follows  that  this  sinking 


48  PRICE   AND   QUALITY 

fund  is  in  reality  all  drawn  from  the  pockets 
of  the  people  by  additional  taxation ;  or,  in 
other  words,  that  every  penny  which  English 
cities  have  invested  in  industrial  ventures  has 
been  raised  by  taxation  which  would  not  have 
been  raised  had  the  industries  in  question  not 
been  municipalised.  The  profits  which  will 
eventually  be  made  out  of  municipal  industries 
consist,  therefore,  of  nothing  but  the  interest 
on  the  invested  savings  of  the  people :  an 
interest  which  each  individual  might  have 
obtained  for  himself  had  the  money  not  been 
drawn  from  him  by  taxation.  If  this  be  a 
correct  view  of  the  situation,  it  seems  fair  to 
conclude  that  England,  if  she  is  not  losing, 
is  gaining  nothing  whatever  by  her  municipal 
enterprises. 

PRICE  AND   QUALITY 

Complicated  as  has  been  this  discussion,  it  has 
been  simplified  by  leaving  out  one  whole  side  of 
the  question,  a  side  which  in  reality  cannot  be 
omitted,  if  sound  conclusions  are  to  be  reached. 
It  may  be  said,  and  it  has  been  said,  that  muni- 
cipal industry  does  not,  it  is  true,  result  in  any 
direct  financial  gain  to  the  municipal  treasuries, 
but  that  the  goods  thus  supplied  are  both  better 


DIFFICULTIES   IN  COMPARISONS     49 

and  cheaper  than  those  supplied  by  private  pro- 
prietors. The  result  is,  so  it  is  urged,  a  gain 
to  the  consuming  public.  This  is  a  legitimate 
argument  in  favour  of  municipal  ownership  in 
so  far  as  facts  can  be  brought  forward  to  sub- 
stantiate it ;  and  it  should  therefore  be  examined. 
Time  makes  it  impossible,  however,  for  me  to 
dwell  at  length  on  the  questions  thus  opened 
up  for  consideration  ;  nor  is  it  very  desirable 
to  do  so,  if,  as  is  probable,  the  result  would 
be  to  thicken  rather  than  to  lighten  the  fog 
through  which  we  are  passing.  A  few  words 
must,  however,  be  said. 

Figures  have  no  doubt  been  quoted  to  prove 
that  the  price  charged  for  gas  in  England  by 
private  corporations  is  higher  than  that  charged 
by  municipal  gas-works.  The  difficulty  in  such 
comparisons  is  to  eliminate  all  the  other  elements 
of  difference  besides  the  one  the  results  of  which 
we  wish  to  investigate.  In  all  the  published 
results  known  to  me,  it  appears  that  the  popula- 
tion supplied  by  each  private  gas-works  is  on 
an  average  smaller  than  the  population  supplied 
by  each  public  gas-works ;  and  it  is  probable, 
therefore,  that  the  private  gas-works  supply  less 
densely  populated  areas.  But  gas  -  works  in 
scattered  districts  cannot  produce  gas  as  cheaply 
as  works  in  more  crowded  districts ;  the  chief 

G 


50  PRICE  AND   QUALITY 

reason  being  that  the  capital  expenditure  on  gas 
mains  is  proportionately  greater.  It  is  therefore 
not  improbable  that  gas  from  private  works  is 
dearer,  not  because  of  the  private  management, 
but  because  the  population  supplied  is  less 
dense.  In  fact,  municipal  authorities,  being  free 
to  establish  works  everywhere,  have  generally 
done  so  in  the  most  favourable  localities,  only 
the  districts  rejected  by  them  being  available  for 
the  operations  of  private  corporations.  In  such 
investigations  it  is  essential  that  all  circumstances 
affecting  prices,  such  as  the  average  relative 
level  of  wages,  the  cost  of  materials,  etc.,  should 
be  taken  into  consideration,  or  the  results  will  be 
more  or  less  fallacious.  For  lack  of  such  pre- 
cautions, all  existing  comparisons  of  the  relative 
prices  of  gas,  electricity,  water,  etc.,  produced 
by  municipal  and  by  private  industry  are,  in 
my  opinion,  untrustworthy. 

It  is,  moreover,  not  only  the  relative  price,  but 
the  relative  quality  also  which  has  to  be  taken 
into  consideration.  Even  in  those  industries  in 
which  comparisons  of  quality  can  be  made  with 
accuracy,  they  will  be  as  fallacious  as  the  com- 
parisons regarding  price  if  the  effects  of  all  the 
other  elements  of  difference  are  not  eliminated. 
As  regards  water,  gas  and  electricity,  it  is,  for 
example,  doubtful  whether,  on  the  whole,  the 


QUALITY   OF   SERVICE  51 

civic  authorities  do  test  their  own  productions 
as  rigidly  as  they  test  the  productions  of  private 
corporations.  Again  in  some  services,  as,  for 
example,  in  the  case  of  street  railways,  the  quality 
of  the  service  supplied  is  largely  a  matter  of 
opinion  ;  and,  in  endeavouring  to  compare  the 
results  of  public  and  private  management  in 
this  respect,  we  can  do  little  more  than  decide 
on  the  weight  to  be  attached  to  flatly  contra- 
dictory statements.  The  terms  of  the  franchises 
which  have  been  granted  to  the  private  pro- 
prietors must  also  be  held  in  view  when 
comparing  their  performances  with  those  of 
civic  authorities.  For  example,  a  private 
corporation  may  be  working  a  street  railway 
with  the  knowledge  that  it  may  be — and  almost 
certainly  will  be — bought  out  before  long  by 
the  municipality ;  and  the  terms  on  which  they 
would  be  expropriated  may  make  it  impossible 
for  the  private  proprietors  to  adopt  improve- 
ments except  at  a  risk  of  financial  loss  ;  whilst 
the  municipal  street  railways,  with  which  the 
comparison  is  being  made,  are  never  hampered 
in  a  similar  manner. 

Thus,  whether  we  consider  price  or  whether  we 
consider  quality,  it  is  now  impossible  to  tell  for 
certain,  by  direct  evidence,  which  supplies  the 
cheapest  and  best  goods,  municipal  industry  or 


52  A   PRIORI  ARGUMENTS 

private  industry.  It  follows,  therefore,  that  the 
conclusions  arrived  at  as  the  result  of  our 
statistical  enquiry  —  namely,  that  it  is  more 
probable  that  cities  are  losing  than  gaining  by 
their  municipal  ventures — though  it  is  rendered 
more  doubtful,  is  not  contradicted  by  extending 
the  enquiry  so  as  to  include  the  questions  con- 
nected with  price  and  quality. 


A   PRIORI  ARGUMENTS 

To  those  who  are  only  acquainted  with  the 
newspaper  accounts  of  English  municipal 
industry,  this  result  may,  perhaps,  appear  sur- 
prising. It  may  be  as  well,  therefore,  briefly  to 
consider  on  a  priori  grounds  the  probability  of  a 
city  making  a  gain  or  a  loss  on  any  industry 
which  it  may  undertake  to  manage.  In  a  large 
number  of  cases,  English  cities  have  bought 
gas-works  from  private  corporations,  the  price 
paid  being  the  commercial  value  of  the  industry 
at  the  date  of  the  purchase  ;  and  these  cases  may 
be  regarded  as  being  typical  of  municipal  industry 
generally  without  introducing  any  serious  errors. 
When  considering  such  a  transfer  of  property,  it 
is  first  to  be  noted  that  the  income  received  from 
the  works,  both  before  and  after  municipalisation, 
may  be  divided  into  two  parts:  the  first  part 


PROBABILITY   OF  A  GAIN         53 

being  that  paid  away  in  management  expenses, 
including  wages,  cost  of  materials,  etc.  ;  and  the 
second  part  being  that  available  for  the  reward 
of  capital,  or  the  interest  on  shares,  stocks  or 
loans.  These  two  divisions,  which  together 
make  up  the  total  income,  are  received  by  the 
private  proprietors  before  municipalisation,  and 
pass  into  the  municipal  treasury  after  the  works 
become  public  property. 

In  order  to  discuss  the  transfer  of  these  two 
parts  of  the  income  separately,  we  may,  in 
the  first  place,  assume  that  the  city  in  question 
will  manage  the  industry  neither  more  nor 
less  efficiently  and  economically  than  the 
private  corporation  it  succeeds;  or  that  the 
amount  of  income  absorbed  by  management 
expenses  after  municipalisation  will  be  the 
same  as  it  was  before  the  transfer  of  the  works. 
We  may  also  assume  for  the  purposes  of  this 
discussion  that  prices  remain  unchanged,  or 
that  the  consumer  is  not  affected  by  the 
transfer ;  in  which  case  the  total  income 
received  will  obviously  be  the  same  before  and 
after  municipalisation.  But  both  the  total 
income  and  that  part  of  it  absorbed  in  manage- 
ment expenses  being  the  same,  the  remaining 
income  available  for  all  other  purposes  must 
be  the  same  also.  In  other  words,  after 


54  A   PRIORI  ARGUMENTS 

municipalisation,  the  city,  when  it  has  covered 
all   the   management  expenses,    will   find  itself 
possessed  of  an  income  available  for  all  other 
purposes  which  is  neither  greater  nor  less  than 
the    sum    which    the    private     managers     had 
previously  paid  away  in  interest  to  their  share 
and    debenture    holders.      Now     it    has    been 
assumed  that  the  works  were  purchased  at  their 
true  capital  value ;  and  consequently,   the  sum 
which   the  municipality   must   raise   by  way  of 
loan   to    effect    the    purchase    represents    what 
was  the  capital   value  of  the  works   whilst  in 
private    hands.      But    all     capital     is     drawn, 
broadly  speaking,  from  the  same  money  market, 
and  the  tendency  is  for  all  lenders  of  capital  to 
obtain  the  same  reward  for  their  services,  or  the 
same  real  rate  of  interest  for  their  capital,  who- 
ever be  the  borrower.     The  city  will,  therefore, 
have  to  pay  about  the  same  amount  in  interest 
for  this  given   capital  as  was  previously  paid 
away  by  the  private  proprietors  in  interest  on 
shares  and   loans  ;  and  it  will  find,  therefore, 
that  this   being  the  total  amount  of  its  avail- 
able income,  it  has  nothing  over  for  any  other 
purpose  whatever.     But  in    England   cities  are 
forced  to  find  sinking  funds  in  addition  to  the 
interest  on   loans.      The  conclusion,    therefore, 
at  which   we  arrive,  when   municipal   industry 


INTEREST  ON   LOANS  55 

is  regarded  in  this  broad  a  priori  way,  is  that, 
granted  that  no  change  takes  place  in  the 
management,  the  income  just  covers  the  whole 
of  the  expenditure  other  than  the  charge  for 
the  sinking  fund,  and  that  this  sinking  fund 
must  be  covered  by  raising  additional  taxation  ; 
or,  in  other  words,  that  a  city  gains  nothing 
and  loses  nothing  by  such  a  venture. 

A  reason  frequently  given  for  believing  that 
municipal  ownership  will  be  a  source  of  gain 
to  a  community  is  no  doubt  that  municipalities 
can  borrow  money  at  a  lower  rate  of  interest 
than  can  private  corporations :  an  argument 
which  directly  traverses  the  conclusions  just 
arrived  at.  The  investor  who  buys  gas 
corporation  shares  gets,  it  is  true,  a  higher 
immediate  return  on  his  investment  than  the 
investor  in  city  loans.  But  this  is  really  not 
to  the  point ;  because  the  money  is  raised  on 
wholly  different  terms  in  the  two  cases.  Private 
corporations  can  only  give  their  own  works 
and  profits  as  security  for  capital  and  interest. 
Municipalities,  on  the  other  hand,  not  only  give 
this  same  security — namely,  the  municipal  works 
and  the  profits  thereon — but  they  in  effect  give 
the  whole  real  property  of  all  the  citizens  as 
an  additional  security.  Thus  a  decline  in 
dividends  or  in  value  is  vastly  more  probable 


56  A  PRIORI  ARGUMENTS 

in  the  case  of  corporation  stocks  than  in  the 
case  of  the  loans  of  great  cities.  What  we  want 
to  know  is  the  average  over  a  long  period  of 
the  total  payments  made  by  corporations  to 
capitalists,  calculated  as  a  percentage  of  the 
total  money  expended  on  the  concerns  in 
question.  Is  this  percentage  higher  than  the 
interest  paid  by  cities  for  their  loans?  There 
is  no  statistical  proof  that  it  is  higher,  and 
no  proof,  consequently,  that  cities  initiating 
industries  can  make  a  profit  because  of  their 
method  of  raising  funds.  Moreover,  it  is  the 
gains  that  we  are  considering,  not  the  profits. 
A  city  might  often  make  a  profit  by  buying 
gas-works,  and  by  then  raising  the  price  of 
gas.  Profits  may  also  be  insufficient  to  cover 
the  interest  on  industrial  loans,  and  additional 
local  taxation  may  be  raised  to  make  up  the 
deficit.  And  if  prices  be  thus  raised,  or  if 
taxation  be  thus  increased,  this  increase  in 
the  burden  on  citizens  must  for  the  purposes 
of  comparison  be  added  to  the  interest  pay- 
able on  the  industrial  loans ;  because  citizens 
escape  these  burdens  under  a  system  of 
private  industry.  Or,  in  other  words,  part 
of  the  profits  of  municipal  industry  should  be 
regarded  as  an  insurance  against  the  additional 
risks  thus  thrown  on  the  community.  Thus 


COST   OF   PRODUCTION  57 

there  are  several  reasons  why  a  mere  com- 
parison between  the  interest  paid  by  cities 
on  their  loans  and  the  immediate  return  to 
investors  on  their  investments  gives  no  sure 
indication  of  the  possibility  of  cities  gaining 
from  municipal  industries.  It  may,  indeed,  be 
a  fact  that  the  mere  prestige  attached  to  the 
name  of  a  great  city  may  help  it  somewhat  in 
borrowing  money,  and  thus  slightly  facilitate 
its  industrial  ventures.  But  this  is  certainly 
but  a  small  gain,  and  it  is  one  which  cannot 
now  be  estimated. 

Thus,  if  it  be  assumed  that  the  management 
will  become  neither  more  nor  less  economical 
when  industries  are  transferred  to  public  bodies, 
these  a  priori  arguments  indicate  that  a  trifling 
gain  to  a  city  may  be  made  by  its  municipal 
industries.  But  is  it  right  to  make  any  such 
assumptions  as  to  the  management?  In  other 
words,  can  goods  be  produced  as  cheaply  by 
the  direct  employment  of  municipal  labour  as 
by  private  corporations  or  by  contract  work? 
Something  may  be  said  on  both  sides  of  this 
question ;  but  general  considerations  tell,  on 
the  whole,  heavily  in  favour  of  the  belief  that 
municipal  production  will  be  more  costly  than 
private  production. 

The  strongest  argument  in  favour  of  the  belief 

H 


58  A   PRIORI  ARGUMENTS 

that  direct  employment  is  economical  relates 
to  the  expenses  of  superintendence.  When 
municipalities  do  work  by  the  direct  employ- 
ment of  labour,  only  one  set  of  inspectors  or 
superintendents  are  required  to  supervise  that 
work  ;  whereas,  in  the  case  of  work  managed 
by  private  proprietors,  municipalities  may  not 
be  able  to  trust  to  the  superintendents  paid  by 
the  private  corporations ;  in  which  case  they 
must  also  employ  inspectors  on  their  own 
account,  thus  increasing  the  cost  of  production. 
This  is  a  valid  argument  in  favour  of  the  direct 
employment  of  labour  by  municipalities  when 
the  cost  of  superintendence  forms  a  compara- 
tively large  percentage  of  the  total  cost :  as,  for 
example,  in  the  case  of  small  bodies  of  men 
employed  in  road -making.  But  as  regards 
most  of  the  industries  usually  municipalised 
in  England,  such  as  the  supply  of  water,  gas 
and  electricity,  the  cost  of  municipal  inspection 
is  very  small,  and  in  such  cases  this  argument 
should  carry  but  little  weight. 

On  the  other  hand,  there  are  many  strong 
reasons  for  believing  that  production  by  labour 
paid  directly  by  municipalities  will  be  materially 
more  costly  than  production  by  private  pro- 
prietors. A  detailed  examination  of  the  diffi- 
culties of  economic  management  by  public 


RATES  OF   WAGES  59 

bodies  would,  however,  occupy  too  much  time, 
and  all  that  can  here  be  attempted  is  to  point 
out  the  underlying  reasons  why  these  difficulties 
are  experienced  in  municipal  and  not  in  private 
industry.  Of  these  general  causes  the  most 
important  is  the  fact  that  the  municipal 
employee  often  has  a  vote  in  the  district  in 
which  the  industry  at  which  he  is  employed 
is  situated ;  or,  in  other  words,  he  frequently 
has  a  voice  in  the  selection  or  the  removal  of 
his  own  masters,  which  is,  of  course,  never  the 
case  in  ordinary  private  industry.  The  muni- 
cipal employer  has,  in  fact,  an  inducement 
for  wishing  to  please  his  employee  which  the 
private  employer  does  not  feel.  The  wages 
of  municipal  workmen  in  England  are,  it  is 
true,  seldom  raised  as  a  definite  and  conscious 
method  of  political  corruption,  but  rather  as 
the  result  of  party  bids  for  popularity  with  this 
portion  of  the  electorate.  Whether  this  be  the 
true  explanation  or  not,  and  whether  justifiable 
or  unjustifiable,  it  is,  however,  certainly  a  fact 
that  municipal  workmen  are  paid  more  highly 
than  their  brothers  in  private  industry. 

Any  undue  consideration  for  the  feelings  of 
municipal  employees  which  is  rendered  probable 
when  large  numbers  of  voters  are  employed  in 
municipal  industries,  must  also  militate  against 


60  A   PRIORI  ARGUMENTS 

the  efficiency  of  the  superintendence  of  these 
works.  Discipline  must  have  some  tendency 
to  become  slack  when  employers  have  one  eye 
on  the  vote,  and  cannot  fix  both  firmly  on  the 
work.  Moreover,  the  power  of  paid  officials 
both  of  dismissal  and  of  selection  on  account 
of  merit  are  for  the  same  reason  generally 
very  strictly  controlled  in  municipal  industry ; 
and  this  makes  it  impossible  for  the  heads  of 
departments  to  carry  on  business  with  the 
same  efficiency  and  promptitude  as  is  possible 
in  private  works.  Lastly,  civic  authorities 
often  pay  inadequate  salaries  to  their  leading 
officials,  because  by  so  doing  they  gain  the 
applause  of  the  mass  of  the  voters.  In  respect 
to  the  voting  power  of  employees,  the  nearest 
approach  to  the  condition  of  affairs  obtaining 
in  municipal  industry  is  to  be  found  in  certain 
co-operative  manufactories.  The  comparison 
is  not,  however,  an  encouraging  one ;  for, 
when  the  employees  are  given  votes  for  the 
election  of  their  own  managers,  these  under- 
takings rarely  flourish.  In  one  respect  the 
superintendence  may  be  even  more  inefficient 
in  municipal  industry  than  in  co-operative 
manufactories ;  for,  when  anything  like  the 
spoils  system  exists,  municipal  officials  are 
frequently  changed.  Thus,  even  if  municipal 


THE   INCENTIVE   OF  GAIN         61 

workmen  were  no  more  highly  paid  than 
private  workmen,  for  all  these  various  reasons, 
municipal  production  by  direct  employment 
would  probably  be  more  costly  than  private 
production. 

As  regards  the  other  underlying  considera- 
tions which  indicate  the  probability  of  rela- 
tively inefficient  management  in  municipal  in- 
dustries, they  are  applicable,  not  only  where 
the  employees  are  directly  paid  by  the  civic 
authorities,  but  often  also  to  industries  owned 
by  public  bodies,  but  not  thus  managed.  Of 
these  general  causes,  the  most  serious  is  the 
absence  of  the  incentive  of  personal  gain  in 
municipal  industries.  The  mass  of  municipal 
voters  interest  themselves  but  little  in  the 
effect  on  their  pockets  of  any  bad  management  of 
these  industries ;  whereas  shareholders,  though 
often  apparently  very  apathetic,  indicate  that 
they  are  alive  to  the  fortunes  of  the  private 
works  in  which  they  are  interested  by  frequently 
selling  their  shares.  Such  sales  of  shares  act 
as  a  stimulus  to  the  managers  of  private 
industries  which  is  without  an  equivalent  in 
municipal  industry.  Moreover,  the  directors, 
often  being  large  holders  of  shares,  have  also 
a  personal  interest  in  the  economic  manage- 
ment of  the  works  under  their  control.  Thus 


62  A   PRIORI  ARGUMENTS 

the  desire  for  personal  gain  is  a  stimulus 
which  originates  with  the  shareholders,  is 
reinforced  by  the  directors,  and  animates  the 
whole  organism  of  private  industry  in  ways 
too  numerous  to  mention. 

The  last  of  the  general  causes  of  inefficiency 
in  municipal  industries  here  to  be  mentioned 
is  the  fact  that  the  system  of  civic  administra- 
tion of  our  cities  was  created  with  the  view  to 
the  performance  of  functions  very  different  from 
those  of  manufacturers.  Political  considerations 
are  mainly  held  in  view  in  the  nomination  of 
candidates  for  local  elective  bodies,  and  voters 
are  but  little  influenced  in  giving  their  votes 
by  the  relative  business  capacities  of  these 
candidates.  In  England  the  aldermen  are 
added  to  Town  Councils  by  co- option,  and 
in  this  co -option  business  qualifications  are 
also  but  little  regarded ;  but  in  private 
industries,  where  directors  are  also  in  effect 
practically  co-opted,  the  weakness  of  the 
Board  of  Directors  in  any  special  direction 
is  often  seriously  considered  when  rilling  a 
vacancy.  For  these  reasons  elected  bodies 
are  likely  to  contain  a  smaller  proportion  of 
men  of  sound  business  instincts  than  are 
usually  found  on  the  managing  bodies  of 
private  corporations. 


SUMMARY  63 

Thus,  whether  we  look  to  the  fact  that  many 
municipal  employees  are  also  voters,  or  to  the 
absence  of  the  stimulus  of  personal  gain  in 
municipal  industries,  or  to  the  political  character 
of  local  elective  bodies,  we  see  ample  reasons 
for  anticipating  that  a  smaller  profit  will  be 
made  on  a  given  capital  in  municipal  than 
in  private  industry. 

To  sum  up  these  a  priori  arguments,  we 
have  seen  that  the  income  of  which  a  city 
would  become  possessed  by  purchasing  any 
industry  may  be  divided  into  two  parts.  As 
to  that  part  which  went  in  the  payment  of 
interest  on  the  capital  of  the  private  pro- 
prietors, it  was  seen  that  cities  when  they 
received  it  into  their  treasuries  might  thus 
hope  to  make  a  very  slight  gain,  because  of 
their  higher  credit.  This  is,  no  doubt,  a 
valid  argument  in  favour  of  municipal  owner- 
ship with  or  without  direct  employment,  but 
an  argument  generally  grossly  exaggerated, 
through  misapprehensions  of  the  facts.  The 
second  part,  or  the  remainder  of  the  income 
of  which  cities  would  become  possessed  by 
the  municipalisation  of  any  industry,  is  that 
which  covered  the  expenses  of  management  in 
private  industry ;  and,  as  it  was  seen  that  these 
expenses  of  management  would  be  considerably 


64         FINANCIAL  CONCLUSIONS 

increased  by  the  direct  employment  of  muni- 
cipal labour,  it  follows  that  this  available 
income  would  no  longer  cover  these  expenses. 
A  loss  much  more  considerable  than  the 
possible  gain  due  to  high  municipal  credit 
would,  therefore,  probably  be  incurred.  In 
other  words,  the  general  conclusion  arrived 
at  by  a  priori  considerations  is  that  a  city, 
even  if  no  sinking  fund  had  to  be  provided, 
would  make  a  loss  by  purchasing  any  industry 
and  working  it  by  the  direct  employment  of 
labour,  a  loss  which  would  have  to  be  made 
good  by  additional  taxation. 


FINANCIAL  CONCLUSIONS 

Comparing  this  result  with  the  results  arrived 
at  in  the  previous  discussion  on  municipal 
statistics,  it  will  be  remembered  that  there 
also  a  loss  was  somewhat  vaguely  indicated 
as  being  not  improbable.  It  may,  however, 
only  be  safe  to  conclude  that  the  results  of 
a  priori  reasoning  are  not  refuted  by  statistics  ; 
for  certainly  a  very  wide  margin  of  doubt 
exists  as  to  the  gains  or  losses  indicated  by 
English  municipal  accounts,  mainly  because 
of  the  difficulty  of  estimating  the  income 


INCREASED  TAXATION  65 

which  might  be  derived  from  private  industry 
under  proper  franchise  laws,  and  of  making 
allowance  for  various  questions  connected  with 
price  and  quality.  But  if  such  statistical 
results  are  unreliable,  ought  we  not  to  attach 
great  weight  to  the  conclusions  arrived  at  by 
a  priori  methods?  It  must,  moreover,  be 
remembered  that  English  statistics  generally 
relate  to  cities  where  municipal  industry  only 
includes  a  few  municipal  monopolies,  and 
also  that  these  works  have  not,  as  a  rule, 
been  constructed  by  the  direct  employment 
of  municipal  labour.  If,  therefore,  we  wish 
to  estimate  the  effect  of  the  wide  adoption 
of  municipal  ownership,  together  with  the 
direct  employment  of  labour,  and  also  of  its 
entry  into  the  field  of  competitive  industry, 
we  have  no  statistics  to  guide  us,  and  we 
must  trust  almost  wholly  to  a  priori  considera- 
tions :  considerations  which  point  to  the  con- 
clusion that  a  considerable  burden  of  extra 
taxation  would  be  thrown  on  the  inhabitants 
of  any  city  in  which  such  experiments  were 
being  made. 

But  if  we  confine  our  attention  to  the  muni- 
cipal ownership  of  the  chief  municipal  mono- 
polies, when  English  statistics  do  become 
relevant,  it  must  be  admitted  that  we  have 

I 


66         FINANCIAL  CONCLUSIONS 

been  marching  through  a  fog  in  tracking  the 
truth  of  municipal  finance,  and  that  we  may 
have  lost  our  way.  But  it  can  hardly  be 
denied  that  if  municipal  industry  with  the 
direct  employment  of  labour  did  not  result  in 
a  loss,  as  above  suggested,  but  was  in  reality 
a  source  of  considerable  gain  to  the  cities  of 
that  country,  this  fact  could  not  possibly  have 
been  hidden  by  any  statistical  cloak.  This 
conclusion  is  not  unimportant ;  for  if,  on  other 
grounds,  it  should  appear,  as  regards  any 
particular  industry  in  any  particular  place, 
that  its  operation  by  the  direct  employment 
of  municipal  labour  is  distinctly  undesirable, 
then  the  financial  aspects  of  this  question  may 
be  dismissed  without  consideration.  A  re- 
examination  of  the  facts  certainly  could  not 
disclose  the  existence  of  more  than  a  small 
gain  to  English  cities  on  the  average ;  and  this 
small  gain  could  not  outweigh  any  serious 
disadvantages  in  other  directions  which  might 
result  from  municipal  ownership.  On  the 
other  hand,  if  my  conclusions  are  right,  then 
the  financial  results  of  the  direct  employment 
of  labour  by  municipalities  must  always  tell  as 
a  material  weight  in  the  scales  against  this 
method  of  management. 


LECTURE    III 

MUNICIPAL  CORRUPTION 

IN  my  last  lecture  we  were  considering  the 
financial  aspects  of  municipal  ownership ;  and 
the  conclusion  arrived  at  from  a  study  of 
English  statistics  was  that,  as  practised  in  that 
country,  it  is  a  source  of  no  great  gain  or  loss 
on  the  average  to  the  cities  practising  it ;  whilst 
a  priori  arguments  pointed  to  the  conclusion 
that  it  is  considerably  more  likely  to  be  a 
source  of  loss  than  of  gain.  Passing  on  to 
the  more  weighty  arguments  in  this  controversy, 
the  one  most  frequently  discussed  in  the  United 
States  is  probably  that  connected  with  muni- 
cipal corruption.  And  here  again,  in  dealing 
with  this  subject,  we  shall  be  considering 
municipal  ownership  operated  by  the  direct 
employment  of  municipal  labour. 

One  of  the  points  which  here  appears  to  tell 
most  in  favour  of  municipal  ownership  is  the 
belief  that  it  would  tend,  if  extensively  adopted, 

67 


68         MUNICIPAL   CORRUPTION 

to  purify  civic  life  ;  whilst  in  England  many 
of  the  opponents  of  this  movement  base  their 
opposition  largely  on  their  conviction  that 
corruption  would  thus  inevitably  be  increased. 
Here,  therefore,  is  a  flat  contradiction  of 
opinions  which  is  well  worth  investigating. 

A  sentiment  sometimes  carries  considerable 
weight    because     it    has     been     only     vaguely 
imagined,   and  has  never  been   held  up  in  the 
cold  light  of  logical   reason.     Of  this  type   is 
the  following  argument,  which,  although  it  is 
generally   only   perceived    in    a  sub  -  conscious 
way,  appears   to  have  an  illegitimate  influence 
in  the  United  States.     There  is  no  country,  so 
the  argument  runs,  where  municipal  ownership 
flourishes  to  a  greater  extent  than  in  England ; 
in  England  municipalities  are  free  from  corrup- 
tion :  therefore,  let  us  adopt   municipal  owner- 
ship as  a  cure  for  corruption.     It  is  true  that 
there   is  little  open   and   serious  corruption  in 
English  cities ;  and   it   is  also  true   that  muni- 
cipal ownership  has  there  made  vast  strides  in 
recent  years.      This   argument  is   nevertheless 
wholly  illogical :  which  will  probably  be  made 
apparent  when    it   is   translated   into  a   logical 
form.     It  might,  no  doubt,  be   logically  urged 
that  municipal  ownership  has  increased  greatly 
in    England ;    that    corruption    has    decreased 


CORRUPTION   IN   ENGLAND       69 

concurrently  with   this    increase    in    municipal 
ownership ;   and  that,  consequently,   municipal 
ownership  has  not  improbably  been  the  remedy 
which  drove  away  the  disease.     This  argument 
would  be  logical ;  but,   unfortunately,  the  facts 
necessary    to    sustain    it    are  wholly   wanting. 
With    regard   to  all   forms  of  corruption,    but 
especially    as    to    the    underground    action    of 
respected  city  thieves,    it  is  always  difficult  to 
ascertain  the  truth,  and  only  personal  impres- 
sions derived   from   reading    and   conversation 
can  here  be  given.      In  the  greater  number  of 
English   cities  there   is   nothing  worse  than  a 
mild  type  of  corruption  ;  and  even  that  is  very 
rare,  except  in  the  smaller  elected   bodies.     It 
consists  in   local   builders   getting   jobs  which 
outsiders  would  do  more  cheaply,  and  perhaps 
in    officials    getting    commissions    for    placing 
municipal    orders.       But    there    are    no    signsx 
whatever    of   any    lessening    of   these    corrupt 
practices    having    taken     place    simultaneously 
with  the  increase  of  municipal  ownership;  and,/ 
indeed,  recent  revelations  of  serious  corruption  '*• 
in  certain  localities  make  it  appear  as  if  there 
were    a    back-sliding  and   not  an   advance    in^ 
municipal     morality.      Thus     the    coincidence 
of  the  existence   in  England  of  fair  municipal 
purity  and  a  great  amount  of  municipal  industry 


70         MUNICIPAL  CORRUPTION 

cannot  in  any  way  whatever  be  made  the  basis 
of  an  argument  in  favour  of  the  purifying 
effect  of  municipal  ownership. 

English  municipal  purity,  such  as  it  is,  is,  in 
fact,  due  to  wholly  different  causes.  The  civic 
morality  of  any  country  is  a  tree  of  slow  growth, 
and  to  account  for  its  form  we  must  study  the 
storms  of  bygone  years.  But  municipal  owner- 
ship in  England  is  of  recent  growth,  and  has 
developed  with  extraordinary  rapidity  during  the 
last  few  decades.  It  is  true  that  municipal  water- 
works have  existed  for  a  long  time,  and  that 
the  gas-works  of  Manchester  were  placed  under 
public  control  as  early  as  1824  ;  but  these  are  the 
exceptions  and  not  the  normal  developments  by 
which  the  state  of  a  country  should  be  judged. 

•/The  rate  of  the  increase  in  municipal  industry 
may  be  sufficiently  illustrated  by  the  one  fact  that 
the  debts  for  public  service  utilities  in  English 
cities  recently  increased  by  100  per  cent,  in 

\fourteen  years.1  It  is,  however,  the  directly- 
paid  employees  we  now  mainly  have  in  view ; 
and  if  the  increase  in  their  numbers  were 
known,  the  figures  would  probably  be  even 
more  startling ;  because,  as  regards  the  works 
for  which  the  debts  are  raised,  the  proportion  of 

1  See  Statistical  Abstract  for  the  U.K.  Cd.,  3092.  1889-90 
and  1903-4. 


OWNERSHIP   AS  A  CURE          71 

water-works  and  harbours,  where  there  are  com- 
paratively few  municipal  employees,  has  been 
decreasing  in  recent  years.  Thus,  if  history 
teaches  us  that  the  current  ethical  code  is  but 
slowly  affected  by  external  causes,  it  must  be 
admitted  that  English  municipal  morality  has 
been  as  yet  comparatively  little  affected  by  this 
movement.  On  the  same  grounds,  if  municipal 
ownership  should  now  be  rapidly  developed  in 
the  United  States,  and  if,  in  truth,  contrary  to 
my  belief,  it  would  have  a  curative  influence,  it 
must  also  be  admitted  that  whatever  faults  now 
exist  would  continue  to  show  themselves  for 
many  years  to  come. 

No  doubt   many   intelligent    and    thoughtful 
persons  do    believe  that    municipal   ownership 
would  tend  to  stop  municipal  corruption  in  the 
United   States.      As  a  stranger   I   must  speak 
with  caution  on  this  subject,   and  deal  mainly 
in    generalities.      It    may,    however,    fairly    be 
regretted  that  those  who  hold  such  beliefs  do 
not,  as  a  rule,  state  at  all  clearly  how  this  puri- 
fication is  to  be  affected.     Municipal  ownership^ 
can    only   produce    such    beneficial    results    in^ 
one  of  two  ways  :   it  may  either  directly  tend 
to  make  those  taking  part  in  local  government 
intrinsically  purer  by  planting  higher  ideals  in- 
their  minds,  or  it  may  lessen  corruption  by  the 


72          MUNICIPAL  CORRUPTION 

removal  of  temptation  from  the  path  of  the 
civic  authorities.  These,  the  only  two  possible 
beneficial  tendencies,  must  each  be  examined. 

With  regard  to  the  first  of  these  possible  bene- 
ficial influences,  it  is  necessary  to  enquire  why 
municipal  ownership  should  have  an  intrinsi- 
cally purifying  effect  on  civic  life.  Where  great 
responsibilities  are  thrown  on  elected  bodies  in 
English-speaking  countries,  it  is  true,  no  doubt, 
that  they  generally  rise  to  the  occasion.  But  as 
regards  the  larger  English  cities,  the  number  of 

^  the  different  duties  performed  by  their  Town 
Councils  is  now  so  great  that  any  new  additions 
to  the  list  would  add  but  little  to  the  dignity  of 
their  position  or  to  the  interest  taken  by  the 

\  public  in  their  work ;  and  it  is  difficult  to  believe 
that  any  elevating  influence  could  result  from  an 
increase  in  the  burden  thrown  on  their  backs. 
Whether  the  duties  performed  by  the  local 
authorities  of  Boston  and  New  York,  for  example, 
are  insufficient  to  arouse  their  civic  enthusiasm 
to  the  utmost,  or  whether  new  responsibilities 
would  heighten  their  ideals  of  civic  duty,  it  is  for 
the  citizens  of  this  country  to  judge. 

But  in  such  matters  we  must  always  look  to 
both  sides  of  the  question,  and  here  we  must 
consider  whether  municipal  ownership  may  not 
have  a  deteriorating  effect  as  regards  the  character 


DETERIORATING   INFLUENCES    73 

of  elected  administrators.  In  England  it  has 
frequently  been  suggested  that  the  number  of 
sound  and  capable  men  willing  to  devote  their 
time  to  municipal  administration  is  very  limited, 
and  that  the  more  capable  they  are,  the  more 
completely  will  their  time,  as  a  rule,  be  absorbed 
in  their  private  affairs.  The  man  from  whom 
business  has  retired  may,  it  is  true,  be  pleased  at 
the  thought  of  managing  a  municipal  industry 
where  his  commercial  incapacity  will  cause  him 
little  personal  inconvenience.  But  men  of  the 
type  most  needed  will  frequently  be  not  attracted 
to,  but  rather  repelled  from  civic  life  by  any 
increase  in  the  amount  of  time  and  energy 
demanded  from  the  members  of  local  elected 
bodies.  Moreover,  the  establishment  of  many 
municipal  industries  in  any  city  will  render  it 
less  likely  that  conscientious  councillors  will  be 
able  to  retain  their  seats  should  they  seek 
re-election.  Workmen  cannot  be  blamed  for 
frequently  striving  for  an  increase  of  wages  ;  for 
apathy  on  that  subject  would  soon  result  in  their 
being  inadequately  rewarded.  The  inevitable 
result  of  such  action  on  their  part  is,  however, 
that  employers  constantly  have  thrust  on  them 
the  disagreeable  task  of  refusing  such  demands. 
But  when  these  demands  for  extra  wages  or 
shorter  hours  are  made  by  the  employees  in 

K 


74         MUNICIPAL   CORRUPTION 

municipal  industries,  many  of  whom  have  votes 
in  the  locality  in  which  the  works  are  situated, 
who  is  it  who  will  be  foremost  in  resisting  un- 
reasonable appeals — the  conscientious  councillor, 
who  merely  considers  his  duty,  or  the  uncon- 
scientious  councillor  who  looks  mainly  to  vote- 
catching?  Any  opposition  to  an  increase  in 
the  wages  of  municipal  employees  on  the  part 
of  a  high  -  minded  administrator  will  not  be 
forgotten  at  the  next  election,  and  he  will  receive 
no  reward  for  his  virtue,  unless,  indeed,  it  be  held 
to  be  a  reward  to  be  relieved  from  all  further 
necessity  of  attending  to  onerous  civic  duties. 

The  voting  power  of  municipal  employees 
will,  moreover,  tend  to  demoralise  the  electors 
as  well  as  the  elected.  To  believe  one's  self 
to  be  underpaid  is  a  common  human  weakness, 
and  demands  for  an  increase  of  remuneration 
are  apt  to  appear  merely  like  demands  for 
justice.  But,  in  making  demands  for  such 
"just"  treatment,  the  municipal  workman 
must  soon  discover  that  his  vote  is  a  material 
assistance,  and  he  is  likely,  therefore,  to  come 
to  regard  the  giving  of  it  more  and  more  as 
a  private  privilege  and  less  and  less  as  a 
public  duty  to  be  exercised  in  the  interests  of 
the  community  at  large.  This  is  certainly  a 
downward  step  in  the  path  leading  to  corrup- 


ELECTORS   DEMORALISED         75 

don.  For  instance,  is  not  the  municipal  V 
councillor  who  uses  his  vote  on  the  council 
for  purposes  of  " graft"  likely  to  be  less 
severely  condemned  by  the  municipal  work- 
man who  looks  mainly  to  his  pay  when  giving 
his  own  vote  than  by  the  workman  in  private 
employment  who  cannot  thus  attempt  to  grind 
his  own  axe?  When  a  man  on  a  downward 
path  ceases  to  condemn  others,  he  generally 
falls  more  rapidly  himself.  Thus  the  municipal 
employee  is  tempted  to  regard  his  vote  mainly 
as  an  engine  to  be  used  in  bettering  his  own 
position,  though  thus  to  regard  it  would  have 
a  demoralising  effect  on  himself. 

Thus  there  are  opposing  advantages  and  dis- 
advantages of  municipal  ownership  as  regards 
the   moral   tone  of  civic  life.     The  municipal- 
isation    of  industries   may  act  as  a  stimulus ; 
but,    like  other  stimulants,    it  is    likely    to   be 
accompanied  by  harmful  after-effects,   lowering 
the    general    tone    of   the  body   politic.     BotrlN 
electors  and  elected  will  be  adversely  affected 
by  the  direct  employment  of  municipal  labour — 
that  is,   by  the  payment  of  voters  by  the  city 
authorities  ;  and  these  harmful  influences  would, 
in  all  probability,  quite  outweigh  the  beneficial' 
results  arising  from  the  increased  responsibility// 
thrown  on  the  civic  authorities. 


76         MUNICIPAL   CORRUPTION 

In  reply  to  the  foregoing  contentions,  which 
'  indicate    that    municipal   ownership    is    almost 
\certain  to  increase  municipal  corruption,  it  has, 
no    doubt,    frequently    been    urged    that    civil 
service  reform  must  be  adopted  in  the  United 
States  simultaneously  with  any  great  increase 
v  in   municipal   ownership.     But  it  is  difficult  to 
grasp   the  views    of   those  who  take    up    this 
position.     If  they  do  admit  that,  without  some 
reform  in  the  methods  of  local   administration 
in    the     United    States,    municipal    ownership 
would  increase  the  dangerous  tendencies   now 
under  discussion,    surely   they  ought    to    hold 
that  civil  service  reform  should  be  an  accom- 
plished    fact     before    municipal    ownership    is 
advocated.      But,    as    a    fact,    they    show    no 
desire  thus  to  postpone  the  advent  of  municipal 
ownership ;    and    it   appears,    therefore,    as    if 
they  would  deny  its  corrupting  influence.     But 
if  they  do  deny  this,  why  should  they  in  any 
way   link  civil  service    reform    and    municipal 
ownership  together  as  component  parts  of  one 
general    scheme?    Their    attitude    appears,    in 
fact,  to  be  illogical.     But  it  may,   perhaps,  be 
assumed  that  the  advocates  of  municipal  owner- 
ship combined  with  civil  service  reform  regard 
the    main    advantage    of    municipal   ownership 
to   be  the   consequent   removal    of  temptations 


FRANCHISES  AND   FRAUD         77 

from   the  path   of  the  civic  authorities,    rather 
than  its  directly  purifying  influence. 

Passing  on,  therefore,  to  consider  the 
temptations  which  may  be  escaped  by  cities 
initiating  municipal  industries,  it  should  be 
observed  that  in  England  we  are  quite  un- 
familiar with  the  line  of  reasoning  frequently 
followed  in  the  United  States  on  this  subject. 
The  argument  as  here  used  may,  it  is  believed, 
thus  be  stated.  The  worst  frauds  attributed  to\ 
civic  administrators  have  been  committed  in 
connection  with  the  franchises  granted  to 
private  corporations ;  abolish  these  franchises 
by  means  of  the  introduction  of  direct  municipal 
labour,  and  this  type  of  fraud  must  disappear/ 
entirely.  Certainly  this  contention  is  worthy 
of  most  careful  consideration. 

In  England  hardly  any,  if  any,  frauds  have 
arisen  in  connection  with  private  franchises, 
and  this  argument,  in  this  form  at  all  events, 
falls  to  the  ground  as  regards  my  country. 
But,  assuming  such  troubles  to  have  arisen 
elsewhere,  it  is  necessary  to  enquire  to  what 
extent  the  temptation  leading  to  corrupt 
practices  would  be  diminished  by  the  muni- 
cipalisation  of  an  industry,  a  point  which  has 
not  been  probed  sufficiently  deeply  in  this 
controversy.  Taking  the  case  of  municipal 


78         MUNICIPAL  CORRUPTION 

gas-works,  as  an  example,  a  very  large  pro- 
portion of  the  works  in  England  have  been 
either  purchased  from  private  proprietors  or 
built  by  contract ;  and,  where  municipal  owner- 
ship is  initiated  by  either  of  these  methods, 
ample  opportunity  for  fraud  is  thus  given ; 
forms  of  corruption  which  would  eventually 
result  in  excessive  municipal  loans  and  cor- 
respondingly swollen  payments  for  interest 
and  sinking  funds.  After  the  purchase  of  the 
gas-works,  the  whole  of  the  expenditure  on 
the  production  of  gas,  other  than  the  above- 
mentioned  payments  on  account  of  loans, 
would  be  either  on  account  of  the  purchase 
of  materials  or  for  the  salaries  and  wages  of 

-^the  municipal  employees.  When  works  are 
both  constructed  and  operated  by  the  direct 
employment  of  labour  by  municipalities,  abso- 
lutely the  whole  of  the  expenditure  may  be 
divided  under  these  headings  of  materials  and 

,  wages ;  for  in  that  case,  even  as  to  municipal 
loans,  they  would  have  been  raised  solely  to 
cover  these  items  of  expenditure  in  the  original 
construction  of  the  works.  But  as  regards  the 
purchase  of  materials,  fraudulent  contracts  and 
secret  commissions  would  always  remain  as 
dangers  to  be  guarded  against.  And  as  regards 
wages,  here  also  it  must  be  remembered  that 


TEMPTATIONS  WITH  OWNERSHIP  79 

the  civic  authorities  would  always  remain  under\ 
the    temptation    of   buying    the    votes    of   the 
municipal    workmen    by    raising    their    wages ,, 
or    shortening  their  hours  of  work.     Thus   in 
absolutely     no     part     of    the     expenditure     in 
municipal   industry,    whether    it    be    on    loans, 
materials  or  wages,  does  municipal  ownership 
afford  a  method  of  escape  from  the  dangers  of 
corruption ;    and,    as   regards    the   facilities  for^) 
bribery,    they  would    be    increased.      All   that 
can  be  said  is  that  the  amount  of  the  plunder 
obtainable    by    corrupt    civic    authorities    may 
thus,    perhaps,    be   reduced.     In  other  respects 
as  regards  corruption,   the   municipalisation   of 
an    industry   will  be  but  stepping   out   of  the 
frying-pan  into  the  fire. 

The  exact  relative  amount  of  possible  fraud 
under  different  systems  should,  no  doubt,  be 
held  in  view ;  but  it  is  even  more  important 
to  consider  the  conditions  which  are  least 
likely  to  tend  to  make  corruption  either  spread 
or  obtain  a  firmer  grip  on  a  city.  Whether" 
we  look  to  the  conditions  affecting  the  electors 
or  the  elected,  the  foregoing  arguments  point 
to  the  conclusion  that  corruption  is  more  likely 
to  arise  under  municipal  ownership  than  witlj^ 
private  industry ;  and  the  following  considera- 
tions make  it  seem  probable  that,  where  the 


8o         MUNICIPAL  CORRUPTION 

disease  does  exist,  direct  employment  would 
increase  the  difficulty  of  finding  a  cure.  In 
all  civilised  countries  there  now  exist  a  large 
number  of  advanced  socialists  who  believe 
that  under  a  socialistic  system  the  condition 
of  all  workmen  could,  in  fact,  be  improved. 
They  are,  moreover,  likely  to  regard  municipal 
ownership  as  a  stepping-stone  by  which  to 
gain  their  ends,  and  to  believe  that  to  pay 
municipal  workmen  higher  than  the  market 
rate  of  wages  would  not  only  not  injure  other 
private  workmen,  but  that  it  would  indeed  be 
a  benefit  to  them  by  serving  as  a  sign-post 
pointing  to  the  true  path  of  political  progress. 
Socialistic  enthusiasts  holding  these  views 
can  hardly  be  blamed  for  telling  municipal 
employees  that  their  votes  should  only  be 
given  at  city  elections  to  those  candidates  who 
promise  them  better  terms  of  employment  than 
can  be  obtained  in  private  industry.  But 
would  not  such  agitators  as  these  afford  to 
the  corrupt  politician  precisely  the  opening 
he  would  wish  for?  If  the  city  authorities 
are  corrupt ;  if  they  have  in  their  employment 
thousands  of  workmen  who,  if  dismissed  from 
the  service  of  the  city,  would  sink  to  a  lower 
rate  of  wages ;  if  there  are  a  number  of  honest 
enthusiasts  advocating  this  superior  treatment 


DISFRANCHISEMENT  81 

of  municipal  employees  ;  if,  in  fact,  all  these 
conditions  exist  simultaneously,  what  would 
be  the  chances  of  a  party  of  purity  succeeding 
in  throwing  off  the  cursed  yoke  of  corruption  £/ 
These  high-class  city  thieves  might  sometimes 
get  less  plunder  than  they  would  get  if  they 
had  valuable  franchises  to  dispose  of;  but 
they  would  get  that  plunder,  such  as  it  was, 
with  more  ease  and  certainty.  It  is  the  fear 
of  what  the  future  may  bring  in  the  way  of 
corruption  in  England  which  has  led  me  to 
urge  my  countrymen  to  pause  before  plunging 
further  into  this  municipal  policy.  It  is  for 
Americans  to  consider  how  far  these  argu- 
ments are  applicable  to  the  United  States. 

It  may,  however,  be  urged  that  where  a 
disease  is  feared,  we  should  search  for  an 
antidote  before  deciding  to  swerve  from  our 
path  for  fear  of  meeting  harmful  microbes. 
Political  safeguards  against  corruption  might, 
no  doubt,  be  adopted  ;  and  it  has,  indeed, 
frequently  been  suggested  in  England  by 
persons  of  liberal  views  that  widespread  muni^ 
cipal  ownership  should  be  accompanied  by  the 
disfranchisement  of  all  municipal  employees 
regards  local  elections.  A  better  plan,  in 


opinion,  would   be  to  incorporate  them,    as  it, 
were,   in  separate  constituencies  ;    or,   in  other 

L 


82          MUNICIPAL  CORRUPTION 

words,  to  allow  municipal  workmen  to  elect 
to  all  local  governing  bodies  their  own  repre- 

vsentatives  in  proportion  to  their  numbers. 
This  proposal  would,  no  doubt,  present 
greater  difficulties  in  the  United  States  than 
in  England.  But  if  such  representatives  were 
elected,  they  would  come  forward  as  the 
avowed  advocates  of  the  claims  of  the  muni- 
cipal workmen,  and  their  position  would  be 
both  honourable  and  comfortable  ;  a  statement 
which  can  hardly  be  made  with  regard  to  the 
position  of  certain  members  of  the  English 
House  of  Commons  whose  constituencies  con- 
tain large  numbers  of  voters  in  the  pay  of  the 
Government.  If  this  safeguard  were  adopted, 
and  if  it  were  made  illegal  for  municipal 
employees  to  canvas  voters  not  in  municipal 

v  employment,  then  municipal  ownership  might 
be  regarded  with  much  less  apprehension. 
In  England  it  appears,  however,  as  if  there 
were  not  the  slightest  chance  of  any  such 
reform  being  adopted.  If  this  be  equally  true 
here,  it  must  be  admitted  that  the  abstract 
merits  of  this  proposed  safeguard  afford,  in 
fact,  no  reply  whatever  to  those  who  urge 
that  the  direct  employment  of  labour  by 
municipalities  would  both  increase  the  chances 
of  corruption  arising  in  the  United  States,  and 


MUNICIPAL   WAGES  83 

make    this    pestilence   cling   more   firmly  than 
ever  to  the  diseased  city  where  it  now  exists. 


WAGES    IN    MUNICIPAL    INDUSTRIES 

In  the  foregoing  discussion  on  corruption 
it  was  asserted  that  not  only  do  municipal 
workmen  receive  better  pay  than  private  work- 
men, but  that  many  socialists  hold  that  it  is 
right  that  they  should  thus  be  treated.  If  any 
plea  could  be  sustained  for  the  payment  to 
the  directly-employed  municipal  workman  of  a 
wage  above  the  market  rate  of  wages,  then 
the  fact  that  they  are  thus  paid  could  no  doubt 
be  counted  as  a  weight  in  the  scales  telling  in 
favour  of  municipal  ownership.  It  will,  how- 
ever, be  seen  that  these  socialistic  arguments 
crumble  to  pieces  on  close  examination. 

That  municipal  employees  are  better  off  than 
workmen  similarly  employed  in  private  industry 
is,  I  believe,  an  indisputable  fact,  which  would 
not  be  denied  by  the  advocates  of  municipal 
industry  in  England.  When  a  street  railway, 
for  example,  has  been  recently  municipalised, 
the  town  councillors  concerned  frequently 
boast  that  they  have  altered  the  terms  of 
employment  in  favour  of  their  newly-acquired 


84  MUNICIPAL  WAGES 

employees,  either  by  increasing  their  pay,  or  by 
x  shortening  their  hours  of  labour.  A  diminu- 
tion in  the  length  of  the  day's  work  must 
normally  be  accompanied  by  an  increase  in  the 
,  number  of  hands  employed,  unless,  indeed,  the 
hours  were  uneconomically  long  before  the 
reduction.  Although  evidence  on  this  point 
is  not  altogether  wanting,  it  is  impossible  to 
give  reliable  statistics  as  to  the  relative  number 
of  hands  employed  in  municipal  and  private 
industry,  because  municipal  industry  in  England 
has  never  been  subject  to  the  searching  enquiry 
demanded  by  its  opponents.  As  a  solitary 
example,  it  may  perhaps  be  noted  that  in  an 
interesting  account  of  the  municipalisation  of 
bakeries  in  Sicily,  Professor  Tenerelli  states 
that  the  number  of  hands  employed  rose  from 
404  to  557  in  the  first  fifteen  months  of  public 
management.  But,  whether  more  hands  are 
employed  or  not,  a  great  deal  of  evidence  is 
•  forthcoming  to  show  that  the  rate  of  daily 
wages  is  higher  in  municipal  than  in  private 
\  industry. 

In  passing  on  to  consider  whether  this  is  as 
it  should  be  or  not,  the  analogy  of  a  landlord 
and  tenant  may  serve  us  once  again.  If  an 
eccentric  landlord,  when  he  received  the  rent 
from  the  farmer  farming  his  land,  were  to  hand 


EXCEPTIONAL  TREATMENT       85 

it  over  to  the  civic  authorities  as  a  gift  to  be 
used  so  as  to  reduce  taxation,  no  one  could 
possibly  urge  that  the  workmen  employed  on 
his  land  would  thus  be  aggrieved  ;  for  they 
would  be  thought  to  be  utterly  unreasonable 
if  they  complained  that  the  money  was  used 
for  the  benefit  of  the  public  generally,  instead 
of  being  handed  over  to  them  for  their  sole  use. 
But  if  the  landlord  were  to  farm  his  land  him- 
self, and  were  in  like  manner  to  devote  the 
profits  to  the  benefit  of  the  public,  could  this 
change  in  his  methods  affect  the  rights  of  his 
employees?  Obviously  not.  But  a  landlord 
farming  his  own  land  instead  of  leasing  it  to  a 
farmer  is  closely  analogous  to  a  city  operating 
its  own  street  railways,  for  example,  instead 
of  leasing  them  out  for  operation  to  a  private 
corporation.  When  Birmingham  thus  leased v* 
out  its  street  railways,  no  one  ever  suggested 
that  the  rent  thus  obtained  by  its  citizens  should 
be  reduced  in  order  to  raise  the  pay  of  the 
private  employees  above  the  market  level./ 
And  a  rational  plea  for  exceptional  treatment 
can  no  more  be  established  on  the  ground  that 
a  municipality,  instead  of  leasing  out  its  street 
railways,  operates  them  itself,  than  on  the 
ground  that  a  landlord  farms  his  own  land 
instead  of  letting  it  to  a  farmer.  A  municipality 


86  MUNICIPAL   WAGES 

is  a  landlord,  and  its  industries  are  like  its 
farms  which  it  can  farm  itself  or  not  as  it  thinks 
fit,  without  reference  to  its  employees. 

It  may,  perhaps,  be  urged  that,  for  a  given 
output  and  as  compared  with  private  industry, 
municipal  industry  is  less  costly  in  all  items 
except  labour,  and  therefore  that  the  employees 
may  be  paid  more  highly  without  injuring  any 
one.  It  has,  however,  already  been  indicated 
in  the  foregoing  financial  discussion  that  this 
contention  cannot  be  sustained  by  fact  or 
argument.  It  may,  perhaps,  also  be  urged  that 
although  it  is  true  that  additional  funds  must 
be  obtained,  yet  the  necessary  taxation  would 
fall  more  heavily  on  the  rich  than  the  poor, 
and,  consequently,  that  the  municipal  employees 
would  on  the  whole  be  benefited.  The  true 
incidence  of  the  burden  of  taxation  will  be 
discussed  in  the  last  lecture  ;  and  here  it  is 
sufficient  to  remark  that  it  is  not  denied  that 
municipal  employees  are  benefited  by  their 
exceptional  treatment.  All  that  is  asserted  is 

'  that  additional  taxation  must  be  imposed  where 
municipal  industry  exists,  and  that  it  does 
injure  the  private  workman  somewhat :  the 
greater  the  amount  of  municipal  ownership, 

Hhe  heavier  being  the  burden  thrown  upon  him. 
The  additional  sum  required  may  no  doubt  be 


INCREASED  TAXATION  87 

raised  in  various  ways.  To  obtain  it,  it  may 
be  that  the  price  of  gas,  if  that  be  the  muni- 
cipal product  in  question,  would  be  raised  on 
municipalisation  ;  and  in  that  case  it  would 
be  on  the  consumer  of  gas  that  the  additional 
burden  would  fall,  and  the  impost  would  be 
like  a  tax  on  gas.  But  if  gas  is  to  be  taxed, 
why  should  not  the  proceeds  of  the  tax  go  to 
benefit  the  whole  community?  Surely  it  must\ 
be  wrong  to  levy  any  sum  solely  for  the 
advantage  of  one  class,  a  class  which  is 
selected  at  the  best  arbitrarily,  and  at  the  worst 
on  political  grounds.  Again,  it  may  be  thatX 
the  impost  due  to  the  increase  of  the  labour^ 
bill  on  municipalisation  falls  on  the  tax-payer, 
who  either  has  to  make  up  for  any  deficit  on 
the  gas-works,  or  who  does  not  receive  in 
relief  of  taxation  the  profits  he  might  fairly 
expect  to  get  from  his  municipal  investment^  ^ 
The  impost  due  to  an  increase  in  the  municipal 
wages  bill  must,  in  fact,  fall  on  either  consumers 
or  tax-payers,  and  in  neither  case  is  it  justifiable 
to  make  them  suffer  for  the  sake  of  placing  a 
fraction  of  the  community  in  an  exceptionally 
favourable  position. 

As  another  justification  of  the  exceptional  treat- 
ment of  municipal  workmen,  it  has  been  said 
that  we  should  not  look  at  questions  connected 


88  MUNICIPAL  WAGES 

with  wages  solely  from  the  narrowest  economic 
standpoint.  In  all  matters  with  regard  to  which 
workmen  are  careless  as  to  their  own  true 
interest,  for  example  as  to  their  health  and  safety, 
merely  to  strive  at  producing  goods  as  cheaply 
as  possible  no  doubt  does  not  necessarily  point 
to  the  right  course  of  action.  Although  this  is 
true  enough,  no  great  weight  can  be  attached  to 
the  arguments  founded  on  such  statements.  It 
is,  indeed,  possible  that  the  cost  of  production  in 
municipal  industry  ought  to  be  higher  than  the 

•^cost  in  ill-regulated  private  industry  ;  for  this  is 
not  necessarily  inconsistent  with  the  true  cost  to 
the  nation  being  less,  more  possibly  being  saved 
indirectly  to  the  community  in  matters  of  health, 
etc.,  than  is  lost  by  the  extra  cost  of  production. 

/But  where  private  industry  is  well  regulated,  all 
the  precautions  with  regard  to  health  and  safety, 
which  municipalities  might  reasonably  undertake 
voluntarily,  should  as  far  as  possible  be  enforced 

^on  all  private  proprietors  ;  and  if  that  were  done, 
municipal  industry  would  present  hardly  any 

^  advantages  in  this  respect  over  private  industry. 

/vThe  true  path  of  reform  thus  indicated  is  there- 
fore the  enforcement  of  proper  regulations  in  all 
industries,  and  not  the  promotion  of  voluntary 

\  efforts  on  the  part  of  civic  authorities. 

Again,  it  is  often   urged  that  an  endeavour 


AS   AN   EXAMPLE  89 

should  be  made  by  municipalities  to  set  a  good 
example  to  other  employers  of  labour,  and  that 
exceptional  advantages  may  be  granted  to  muni- 
cipal workmen — not  for  their  own  sakes,  but  for 
the  sake  of  workmen  in  private  employment. 
The  validity  of  this  argument  obviously  depends 
on  whether  private  workmen  are  in  truth  bene- 
fited by  the  advantages  showered  on  municipal 
workmen.  Those  in  doubt  on  this  point  should 
enquire  of  any  keen  manufacturer,  in  the  first 
place,  whether  he  knows  the  rate  of  wages  paid 
by  city  authorities  in  his  neighbourhood,  and  in 
the  second  place,  if  he  is  informed  on  this  point, 
whether  these  civic  rates  of  wages  in  any  way 
affect  the  terms  he  offers  his  own  employees.  A 
smile  will  probably  be  the  answer.  It  is  only^ 
because  municipal  ownership  is  now  almost 
entirely  confined  to  industries  tending  to  become 
monopolies  that  civic  authorities  can  escape  from 
the  control  of  the  economic  forces  dominant  in 
competitive  industries,  and  can  both  make  a 
profit  and  give  their  employees  remunera-  / 
tion  above  the  market  rate.  Where  wages  are 
materially  influenced  by  the  philanthropic  views 
of  an  employer  in  ordinary  industry,  ruin  is 
likely  to  be  the  result ;  and  examples  set  by^- 
the  municipal  owners  of  monopolies  appear  to 
have  no  influence  on  the  wages  in  competitive 

M 


90  MUNICIPAL   WAGES 

^industries.  The  so-called  good  example  as 
set  by  municipalities  is  therefore  only  possible 
because  of  the  municipalisation  of  monopolies  ;  it 
is  almost  without  any  external  influence  ;  and  it 
affords  a  very  feeble  justification  for  the  creation 
of  a  specially  privileged  class  of  workmen. 

Thus,  on  the  one  hand,  little  can  be  brought 
forward  to  justify  municipal  employees  being 
placed  in  a  more  favourable  position  than  their 
fellows  in  private  industry  ;  whilst,  on  the  other 
hand,  there  appears  to  be  no  excuse  for  imposing 
an  unnecessary  burden  on  the  private  workman. 
Moreover,  this  practice  of  favouring  the  muni- 
cipal employee  is  atlso  positively  harmful  for 
reasons  which  may  already  have  been  suggested 
by  this  discussion  on\corruption.  To  dismiss 
workmen  from  municipal  employment  not  only 
throws  them  temporarily  out  of  work,  but  also 
generally  permanently  reduces  their  wages  or 
increases  their  hours  of  labour ;  and  the  more 
power  a  city  has  over  its  employees,  the  easier 
is  it  for  corrupt  authorities  to  influence  their 
votes.  That  municipal  workmen  do  receive 
more  favourable  treatment  than  private  work- 
men is  an  indisputable  fact :  a  fact  which, 
therefore,  on  the  whole,  tells  against,  and  not 
in  favour  of  the  direct  employment  of  labour 
by  municipalities. 


DIRECT  EMPLOYMENT  91 


THE   CASE   FOR   DIRECT   EMPLOY-  Ny 
MENT 

All  the  arguments  thus  far  considered  have 
resulted  in  strengthening  the  case  against  the 
direct  employment  of  labour  by  municipalities ; 
and  the  legitimate  arguments  in  its  favour 
must  now  be  discussed.  The  two  main  argu- 
ments are,  in  the  first  place,  that  municipalities,  / 
by  actually  managing  industries  themselves, 
can  regulate  the  prices  of  the  goods  sold  to 
the  public  more  efficiently  than  under  any 
method  of  industry  in  which  private  proprietors 
participate ;  and,  in  the  second  place,  that 
civic  authorities,  being  less  influenced  by  the 
desire  to  make  profits  than  private  proprietors, 
will,  as  the  representatives  of  the  people,  pay 
more  attention  to  all  questions  connected  with 
morals,  health  or  comfort. 

With  regard  to  both  these  pleas,  it  is  to  be 
noted  that  industry  may,  broadly  speaking,  bev' 
divided   into  two  stages,   namely,   the  work  of 
initiation   and    construction,    and    the    work  of^, 
management  and  production.     It  will   be  seen 
that  the  arguments  in  favour  of  direct  employ-V 
ment  of   labour  by   municipalities  apply  with 


92  DIRECT   EMPLOYMENT 

much  greater  force   in   the  productive  than    in 
\the  constructive  stage  of  industry. 

As  to  the  first  of  the  above-mentioned  argu- 
ments in  favour  of  direct  employment,  namely, 
the  facility  which  municipalities  undoubtedly 
possess  when  they  manage  an  industry  directly 
of  regulating  the  prices  of  goods,  the  other 
aspect  of  this  question  has  already  been  dis- 
cussed in  my  first  lecture,  where  the  best  method 
of  controlling  prices  in  private  industry  was 
considered.  There  it  was  seen  that,  where 
competition  is  free  and  effective,  prices  are 
automatically  regulated,  and  there  is  no  need 
in  this  respect  for  governmental  interference. 
But  the  more  an  industry  tends  to  become  a 
monopoly,  the  more  necessary  is  it  for  the 
State  to  prevent  private  proprietors  from  reap- 
ing undue  or  illegitimate  profits,  and  the 
greater,  consequently,  are  the  advantages  of 
municipal  ownership.  But  a  monopoly  can 
always  be  avoided  in  the  constructive  stage  of 
\industry ;  because  it  can  always  be  arranged 
vthat  there  shall  be  competition/ between  archi- 
tects and  contractors  for  the  design  and 
/  building  of  the  works,  and  between  different 
private  proprietors  when  granting  the  franchises 
giving  the  necessary  rights  to  embark  on  the 
industry  in  question.  Water  supply  in  towns 


REGULATION  OF   PRICES          93 

is  the   most  complete  monopoly  which  exists  ; 
but  the  building  of  water-works  can  always  be 
let    out    to    tender.      There    is,    therefore,    no 
reason    on    account    of    an    industry    being    a, 
monopoly    for    ever    resorting     to     the     direct 
employment  of  labour  by  municipalities  in  the  / 
constructive  stage  of  industry. 

In  the  productive  stage,  no  doubt,  many 
industries  inevitably  tend  to  become  monopolies; 
and,  where  this  is  the  case,  the  regulation  01^ 
prices  can  most  easily  be  effected  by  civic 
authorities  if  they  undertake  the  direct  manage-  / 
ment  of  the  business  themselves.  In  the  case 
of  water,  it  is  often  very  difficult  for  a  city  to 
estimate  what  will  be  the  actual  cost  of  the 
supply ;  because  the  experience  of  other  cities, 
and,  indeed,  the  previous  experience  of  the 
same  city,  affords  but  an  uncertain  guide. 
Hence  the  control  of  water  supplies  in  private 
hands  may  present  considerable  difficulties, 
and  the  necessity  of  regulating  prices  may 
make  the  municipal  management  of  water- 
works very  desirable.  But,  as  regards  other 
industries,  if  the  factors  effecting  the  supply^ 
of  the^  product  are  unlikely  to  change  quickly, 
and  if  its  quality  and  quantity  are  easily/ 
measured — conditions  which  are  fulfilled  in  the 
case  of  gas,  electricity,  and  street  railways — 


94  DIRECT  EMPLOYMENT 

'"then  there  is  generally  but  little  difficulty  in 
estimating  the  cost  of  production  for  some 
time  to  come ;  and  in  these  circumstances,  if 
short  franchises  with  sliding  scales  are  granted, 
it  ought  to  be  possible  to  enforce  a  fair 
scale  of  prices  on  private  proprietors.  In 
some  cases  private  corporations  would  probably 
obtain  undue  profits,  and  the  average  prices 
in  private  industry  would,  therefore,  probably 
be  somewhat  higher  on  this  account  than  the 
scale  of  prices  which  would  obtain  if  the 
industries  in  question  were  municipalised, 
and  if  the  civic  management  were  equally 
economical.  But  municipal  management  will 
not  be  as  economical  as  private  management ; 
and  any  small  gain  which  cities  may  on  the 
average  thus  reap  by  the  more  efficient  con- 
trol of  selling  prices  will  generally  be  more 
than  counterbalanced  by  less  efficient  manage- 
ment. Thus  this  argument  in  favour  of  the 
municipal  management  of  public  utilities, 
other  than  water  supply,  is  generally  not  a 
strong  one ;  though  it  does  point  clearly  to 
the  serious  disadvantages  of  granting  long- 
period  franchises  to  the  private  proprietors  of 
municipal  monopolies. 

The    second   argument    in    favour    of   direct 
employment,    namely,    that  dependent    on    the 


HEALTH   AND   MORALS  95 

temptation  under  which  private  proprietors  lie 
of  neglecting  questions  other  than  those  affect- 
ing their  profits,  is  of  more  importance ;  for, 
undoubtedly,  where  considerations  connected 
with  health  and  morals  point  in  a  different 
direction  to  mere  financial  considerations,  the 
former  should  generally  prevail.  As  regards 
the  constructive  stage  of  industry,  it  is 
obvious  that  plans  and  designs  must  in  all 
cases  be  made  before  building  is  commenced  ; 
and  opportunities  of  considering  these  designs, 
and,  if  necessary,  of  altering  them,  might 
always  be  afforded  to  the  civic  authorities 
whether  the  work  was  eventually  to  be  per- 
formed by  private  contractors  or  by  the  direct 
employment  of  municipal  labour.  As  to  the 
execution  of  work  on  approved  designs,  in  the 
case  of  the  building  of  sewers,  where  the  work" 
is  quickly  covered  up  and  where  subsequent 
inspection  is  difficult,  a  strong  case,  though 
perhaps  not  a  conclusive  one,  can  be  made, 
out  in  favour  of  direct  employment.  But  as 
regards  building  operations  generally,  where^ 
subsequent  inspection  is  not  very  difficult,  we 
have  to  weigh  the  fact  that  the  contractor  is 
likely  to  be  an  expert  in  the  construction/ 
of  works  of  a  certain  type,  against  the  fact 
that  he  is  tempted  to  scamp  his  work  in 


96  DIRECT  EMPLOYMENT 

order  to  swell  his  profits.  Experience  appears 
to  indicate  that  contract  work  executed  under 
proper  supervision  is  sufficiently  good  to  make 
it  doubtful  whether  work  performed  by  direct 
employment  is  better  or  worse  in  quality  ;  and 
as  regards  this  argument  also  there  appears, 
therefore,  to  be  no  case  made  out  for  direct 
employment  in  the  constructive  stage  of 
ordinary  industries. 

In  the  productive  stage  of  industry,  the 
fact  that  civic  authorities  are  not  too  closely 
tied  to  questions  affecting  profits  does,  no 
doubt,  tell  in  favour  of  municipal  ownership 
with  direct  employment  in  the  case  of  many 
public  service  utilities  which,  though  the  term 
industry  seems  hardly  applicable,  are  at  times 
undertaken  by  private  proprietors  for  the  sake 
/of  making  a  profit.  It  may  be  right,  for 
example,  for  a  city  to  manage  public  baths, 
in  order  to  promote  health  and  cleanliness, 
^even  though  a  loss  is  thus  incurred ;  and 
other  services  may,  perhaps,  similarly  be 
justified  on  the  ground  that,  if  a  community 
does  not  appreciate  a  good  at  its  true  value, 
civic  authorities  can  stimulate  its  sale  by 
selling  it  below  cost  price.  In  the  case  of 
/'harbours,  again,  their  municipalisation  may  be 
advisable  because  the  whole  of  the  inhabitants 


SERVICES  TO  BE  MUNICIPALISED  97 

of  the  cities  concerned  may  be  benefited  by 
their  maintenance,  whilst  the  levy  of  a  tax 
may  be  the  only  method  of  making  them/ 
all  pay  for  the  advantages  thus  received.  In 
weighing  the  relative  merits  of  public  and 
private  slaughter-houses,  humanitarian  and 
sanitary  considerations  may  point  to  the 
necessity  for  greater  expenditure  than  private  / 
proprietors  could  easily  be  made  to  incur.  It 
is,  no  doubt,  possible  that  all  these  services 
might  be  left  in  the  hands  of  private  pro- 
prietors if  bounties  were  awarded  to  compensate 
them  for  probable  losses ;  but  bounties  are 
always  open  to  serious  objections.  Lastly, 
where  a  service  is  of  vital  importance  to  the 
community,  it  may  be  undesirable  to  lose 
complete  control  over  it  even  during  the 
period  of  a  short  lease  or  franchise.  Although, 
unfortunately,  perpetual  franchises  have  been 
granted  to  the  proprietors  of  water -works  in 
England,  the  following  example  indicates  that 
the  municipalisation  of  water  supplies  would 
be  preferable  to  private  proprietorship  even  if 
the  franchise  laws  were  reformed.  There  are 
reasons,  though  not  conclusive  reasons,  for 
believing  that  in  a  certain  English  city  the 
water  supply  may  at  any  moment  become 
contaminated  with  the  germs  of  enteric  fever 

N 


98  DIRECT   EMPLOYMENT 

through  no  fault  of  the  private  proprietors 
of  the  water -works.  In  these  circumstances 
it  is  extremely  difficult  to  force  the  private 
corporation  to  take  costly  precautions  against 
the  threatened  danger  —  precautions  which, 
no  doubt,  the  municipality  would  take  if  it 
owned  the  works.  Thus  it  appears  that,  for 
somewhat  similar  reasons,  the  municipalisation 
''of  water-works  and  of  a  number  of  other  public 
\  utilities  should  receive  strong  support.  But 
/none  of  the  foregoing  arguments  apply  with 
any  great  force  in  favour  of  the  municipal 
management  of  such  services  as  the  supply 
\of  gas,  electricity,  or  street  railways;  that  is 
to  say,  to  those  industries  where  a  loss  ought 
not  to  be  incurred  by  the  municipalities 
managing  them,  where  there  are  alternative 
methods  of  supplying  the  wants  of  the  public, 
and  where  questions  connected  with  health, 
morals,  and  comfort  are  not  very  seriously 
involved. 

The  main  advantages  and  disadvantages  of 
direct  employment  having  now  been  discussed, 
it  may  be  as  well  to  recall  briefly  the  way  in 
which  the  whole  question  of  municipal  owner- 
ship is  being  approached.  The  different 
functions  which  a  city  may  perform  have  been 
compared  to  those  of  an  administrative  body, 


DIRECT   EMPLOYMENT  99 

a  landlord,  and  a  manufacturer ;  and  the/ 
question  under  consideration  is  in  what  cases 
should  a  municipality  perform  all  these  three 
functions?  If  the  city  authorities  only  act  as 
an  administrative  body,  all  industries  must 
remain  in  private  hands  ;  if  they  only  act  in 
the  dual  capacity  of  an  administrative  body 
and  of  a  landlord,  then  they  must  lease  out 
such  industries  as  they  own  to  private  pro- 
prietors for  management ;  whilst,  if  they 
undertake  all  these  three  functions,  they  may 
themselves  manage  the  industries  they  own 
by  the  direct  employment  of  labour.  Thus 
there  are  three  possible  methods  of  operating 
industries  which  have  to  be  compared  ;  and, 
in  order  to  facilitate  this  comparison,  it 
seemed  best  to  begin  by  comparing  the  last 
two  methods ;  that  is  to  say,  assuming  a  city 
to  be  the  owner  of  an  industry,  the  first 
question  at  issue  is  whether  that  industry 
should  be  leased  out  to  private  proprietors 
for  management,  or  whether  it  should  be  oper- 
ated by  the  direct  employment  of  labour  by  the 
municipality  itself.  It  is,  in  truth,  difficult 
to  separate  this  question  from  the  broader 
question  of  municipal  ownership ;  but  it  may, 
nevertheless,  be  convenient  first  to  sum  up  the 
foregoing  arguments  which  are  all  certainly 


ioo  DIRECT   EMPLOYMENT 

relevant  to   the    direct   employment    of  labour 
by  municipalities. 

Taking  first  the  case  against  direct  employ- 
ment, the  strongest  argument  brought  forward 
by  its  opponents  is  that  a  large  number  of 
voters  may  thus  be  brought  on  to  the  pay 
lists  of  municipalities,  and  that  this  would 
inevitably  increase  the  danger  of  civic  corrup- 
tion. Then  again,  as  to  financial  considera- 
tions, a  priori  arguments  pointed  clearly  to 
the  probability  that  the  normal  result  of 
direct  employment  would  be,  not  necessarily 
a  deficit,  but  a  Joss,  to  the  city  practising  it  ; 
whilst  English  statistics,  which,  of  course, 
should  not  be  taken  as  a  guide  to  countries 
proceeding  further  along  the  path  of  muni- 
cipal industry  than  England  has  already  trod, 
did  not  refute  and  may  even  be  claimed  to 
afford  a  doubtful  confirmation  of  this  con- 
clusion. 

X  Thus  the  probability  of  greater  corruption 
and  of  increased  cost  of  production  afford  the 
strongest  arguments  against  direct  employ- 

\ment.  On  the  other  hand,  it  has  been  urged 
by  the  advocates  of  this  system  that  muni- 
cipal workmen  are  better  paid  than  private 
workmen ;  but  on  examination  this  argument 
in  favour  of  direct  employment  was  found  to 


SUMMARY  101 

be  invalid.  It  is,  moreover,  indisputable  that 
civic  authorities  obtain  a  complete  control 
over  the  prices  of  goods  they  produce  if  they 
manage  the  works  themselves  ;  and  that  some 
regulation  of  prices  is  necessary  in  the  case 
of  an  industry  tending  to  become  a  monopoly. 
This,  however,  affords  no  argument  in  favour 
of  municipal  ownership  in  the  case  of  industries 
where  competition  is  free  and  effective ;  and 
when  indirect  competition  does  exist,  as  in 
nearly  all  industries,  and  when  the  prices 
charged  by  private  proprietors  can  be  fairly 
well  regulated  under  a  system  of  short-period 
franchises,  the  advantages  which  arise  from 
direct  employment  on  account  of  the  facility 
for  regulating  prices  are  small.  Lastly,  it 
is  urged  that  private  proprietors,  since  they 
must  always  be  seeking  for  profits,  will  pay 
little  attention  to  questions  of  morals,  health,  or 
comfort.  But  here  again  it  was  seen  that  little 
weight  should  be  attached  to  this  argument, 
except  in  the  productive  stage  of  water -works 
and  of  a  number  of  other  public  utilities  hardly 
to  be  called  industries,  such  as  public  baths, 
wash  -  houses,  cemeteries,  slaughter  -  houses, 
markets,  and  perhaps  harbours. 

Opinions  will   no   doubt  differ  widely  as  to 
to    be  attached   to  these  opposing 


102  DIRECT   EMPLOYMENT 

arguments  ;  and  although  my  present  endeavour 
is  to  state  arguments  rather  than  conclusions,  my 
own  views  may,  perhaps,  be  stated  very  briefly. 
Direct  employment  should,  in  my  opinion,  always 
be  shunned  in  industry  proper,  except  in  the 
following  circumstances :  In  the  constructive 

//  stage  of  an  industry  it  may,  perhaps,  be  advan- 
tageous in  the  case  of  the  building  of  sewers,  and 
in  a  few  other  cases  where  the  work  of  inspection 
is  exceptionally  costly  and  difficult.  In  the  pro- 
ductive stage  of  industry  direct  employment  is 

^  only  beneficial  where  three  conditions  are  ful- 
filled :  namely,  where  there  is  a  strong  tendency 
for  the  industry  to  become  a  monopoly,  where  it 
is  of  great  importance  to  the  community — or,  in 
other  words,  where  a  loss  might  reasonably  be 
incurred  by  the  municipality  managing  it — and 
where,  in  the  near  future,  changes  in  the  factors 
of  supply  are  not  improbable  against  which 
adequate  provisions  cannot  be  inserted  in  fran- 
chises or  leases.  As  regards  industries  owned 

3  by  cities  and  not  fulfilling  these  conditions, 
including  gas-works,  electric  lighting  works, 
and  street  railways,  it  is,  on  the  whole,  prefer- 
able that  they  should  be  leased  out  for  short 

X  periods  to  private  proprietors  for  management. 

This    conclusion,    which     is    on    the    whole 

strongly  adverse  to  direct   employment,  would 


v      CONCLUSIONS  103 

if  accepted  practically  close  this  whole  contro- 
versy in  England  ;  because  the  strength  of  the^ 
movement  in  favour  of  municipal  ownership  lies 
in  the  desire  for  direct  employment.  Direct 
employment  being  barred,  it  would  be  easy  to 
deal  with  all  the  outstanding  questions  with 
regard  to  ownership ;  and  it  is  for  this  reason 
that  they  have  been  relegated  to  a  position  of 
secondary  importance.  They  must,  however, 
be  discussed  briefly,  and  in  my  next  lecture 
industries  owned  by  municipalities  and  leased 
out  to  private  proprietors  will  be  contrasted  with 
industries  both  owned  and  managed  privately. 

It  must,  however,  be  remembered  both  that  the 
main  object  of  thus  dividing  the  subject  was  to 
emphasise  the  fact  that  there  are  two  not  readily 
separable  questions  at  issue,  and  that  the  result 
of  the  comparison  next  to  be  made  will  not  be 
without  effect  on  the  question  of  the  direct 
employment  of  labour  by  municipalities.  The 
arguments  which  remain  to  be  considered  are, 
it  is  true,  relevant  to  municipal  ownership  gener- 
ally; but  as  direct  employment  is  not  compatible 
with  private  ownership,  to  whatever  extent  these 
arguments  now  to  be  discussed  should  turn  in 
favour  of  private  ownership,  to  that  extent  there 
will  be  an  additional  weight  to  be  placed  in  the 
scales  as  against  direct  employment. 


LECTURE   IV 

MUNICIPAL    OWNERSHIP 

IN  my  last  lecture  the  direct  employment  of 
labour  by  municipalities  was  considered,  and 
the  conclusion  arrived  at  was  that,  as  regards 
the  points  thus  far  discussed,  civic  authorities 
should,  as  a  general  rule,  avoid  it  as  far  as 
possible.  No  doubt  in  the  exceptional  cases 
where  it  is  the  best  system  to  adopt,  there 
municipal  ownership  becomes  a  necessity  ;  for 
municipalities  would  practically  never  undertake 
the  direct  management  of  labour  at  works  they 
did  not  own.  But,  where  direct  employment  is 
rejected,  it  still  remains  to  be  considered  what 

xare  the  advantages  and  disadvantages  of  muni- 
cipal ownership  :  that  is,  of  municipal  industry 

\without  direct  employment.  Little  time  will, 
however,  be  devoted  to  this  discussion,  both 
because  it  is  a  question  of  less  practical  im- 
portance at  present  than  that  of  direct  employ- 
ment, and  also  because  some  of  the  points  yet 
to  be  considered  bring  us  into  close  contact  with 

'  the  great  controversy  between  individualism  and 

104 


METHODS  OF   INITIATION         105 

socialism — a  controversy  extending  far  beyond  / 
the  scope  of  these  lectures. 

Municipal  ownership  without  direct  employ- 
ment may  be  established  in  the  following  ways. 
A  city  may  initiate  an  industry  ;  that  is  to  say, 
having  decided,  for  example,  that  public  electric 
lighting  works  shall  be  built  in  a  certain  district, 
and  having  raised  the  necessary  funds  and 
bought  the  land,  the  civic  authorities  may  leave 
the  construction  of  the  works  entirely  in  the 
hands  of  a  contractor.  In  this  case  municipal 
ownership  occurs  in  the  constructive  stage  of  in- 
dustry, but  without  direct  employment.  Again, 
civic  authorities  who  have  either  initiated  in- 
dustries in  the  foregoing  manner,  or  who  have 
bought  them  as  going  concerns,  may  lease  them 
out  for  operation  to  private  proprietors.  Here 
there  is  municipal  ownership  in  the  productive 
stage  of  industry.  It  may  no  doubt  be  said  that 
municipal  ownership  of  this  description  is  not 
often  met  with,  as  in  reality  it  is  generally 
accompanied  by  direct  employment.  This  is 
true ;  but  it  merely  tends  to  confirm  the  belief 
that  the  subject  now  under  discussion  is  of  less 
importance  than  that  of  direct  employment. 

When  a  municipality  raises  money  in  order  toN 
establish  or  acquire  an  industry,   it  is,   in  fact, 
speculating  with  the  wealth  of  the  tax-payers  ;  / 

o 


106         MUNICIPAL  OWNERSHIP 

for  either  their  property  must  be  pledged  as  a 
security  for  the  loan,  or  the  money  must  be  raised 
by  taxation.  No  individualist  would  consider 
such  speculation  as  quite  unobjectionable  ;  and 
if  the  industry  were  bought,  many  socialists 
would  also  protest  on  the  ground  that  the  price 
paid  was  excessive.  No  doubt,  in  the  case  of 
an  industry  which  tends  to  become  a  monopoly, 
the  greater  that  tendency,  the  less  is  the 
risk  involved  in  its  municipalisation.  But  risk 
cannot  be  wholly  avoided  ;  for  the  demand  for 
the  goods  supplied  may  decrease  ;  and  where 
works  are  bought  at  their  market  value,  the  price 
paid  always  introduces  a  speculative  element. 
In  fact,  in  all  cases  some  risk,  great  or  small, 
is  thrown  on  a  city  by  municipal  ownership, 
the  other  hand,  when  a  franchise  has  been 
granted  to  a  private  corporation  to  permit  it  to 
operate  any  industry,  no  risk  whatever  is  thus 
thrown  on  the  citizens  as  such ;  and  private 
ownership,  therefore,  always  has  in  this  respect 
an  advantage  over  municipal  ownership. 

Against  the  foregoing  advantage,  namely, 
that  dependent  on  the  absence  of  risk,  various 
alleged  disadvantages  of  private  ownership  have 
to  be  weighed  in  the  scales.  As  to  the  financial 
questions  involved,  these  have  already  been 
discussed  in  connection  with  direct  employment, 


THE  CASE   FOR   OWNERSHIP      107 

and  the  result  was  that  on  the  whole  the  balance 
of  argument  appeared  to  turn  decidedly  against 
municipal  ownership.  Again,  it  has  frequently 
been  urged  that  the  interests  of  the  public  are 
more  efficiently  safeguarded  when  municipalities 
own  industries,  whether  they  operate  them  or 
not,  than  with  private  ownership.  But,  where 
competition  is  free  and  effective,  it  has  been 
seen  that  the  public,  as  consumers  or  tax-payers, 
require  no  safeguards,  and  this  argument  in 
favour  of  municipal  ownership  falls  to  the 
ground  in  these  circumstances.  It  is  true  that 
when  there  is  a  tendency  for  an  industry  to 
become  a  monopoly  from  any  cause  whatever, 
then  that  industry  must  be  more  or  less  con- 
trolled by  the  State.  But  here  again  it  must  be 
remembered  that,  as  to  the  objects  sought  to  be 
obtained  by  that  control,  namely,  the  safeguard- 
ing of  the  interests  of  the  consumer  and  the  tax- 
payer, they  are  exactly  the  same  whether  a 
municipality  does  or  does  not  own  the  works  in 
question  ;  and  also  that  any  safeguards,  which 
in  the  case  of  municipal  ownership  should  be 
inserted  in  the  leases  granted  by  municipalities 
to  private  corporations,  can  equally  well,  in  the 
case  of  private  ownership,  be  inserted  in  the 
short -period  franchises  granted  to  private  pro- 
prietors. In  fact,  it  has  not  yet  been  sufficiently 


io8         MUNICIPAL  OWNERSHIP 

X  recognised  that,  if  a  franchise  is  only  granted  for 
a  limited  period,  the  State  may  be  said  in  a  sense 
to  retain  the  true  ownership  of  the  industry, 
although  it  is  nominally  a  case  of  private  owner- 

\ship  ;  and  that  where  the  ownership  is  thus  in 
effect,  though  not  nominally,  retained  by  the 
State,  actual  municipal  ownership  presents  little 
advantage  as  regards  the  safeguarding  of  the 
interests  of  the  public. 

Where  a  corporation  has,  however,  been 
granted  a  franchise,  giving  it  the  right  to 
manage  a  monopoly  in  perpetuity,  then  the 
conditions  are,  no  doubt,  such  as  to  make  it 
improbable  that  the  interests  of  the  public  are 
being  properly  safeguarded,  and  some  reform 
is  much  to  be  desired.  There  is  no  inherent 
objection  or  difficulty  in  the  State  permitting 
municipalities  in  such  cases  to  convert  these  per- 
petual franchises  into  short-period  franchises,  the 
private  corporations  being  duly  compensated ; 
and  this  seems  to  me  to  be  the  wisest  reform  to 
be  adopted  in  these  circumstances.  But  if  this 
suggestion  is  rejected  as  impracticable,  then  it 
appears  that  the  only  way  for  the  civic  authori- 
ties to  safeguard  the  public  without  resorting  to 
direct  employment  is  to  buy  out  the  owners  of 
perpetual  franchises  and  to  lease  out  the  works 
for  short  periods  to  private  corporations. 


THE   NATIONAL  DIVIDEND       109 

Thus  far  it  appears  that  the  case  for  municipal^ 
ownership  without  direct  employment  is  strong 
only  where,  in  the  case  of  monopolies,  perpetual/ 
franchises  have  already  been  granted.  But,  as 
regards  street  railways,  since  municipalities 
must  repair  the  roadways,  there  is  also  much  to 
be  said  in  favour  of  the  control  of  the  whole 
surface  of  the  street,  whether  paved  with  iron  or 
not,  remaining  in  the  hands  of  the  civic  authori- 
ties. With  this  and  a  few  similar  exceptions, 
the  risks  involved  in  municipal  ownership  make 
private  proprietorship  with  short  franchises  the 
preferable  system. 

The  foregoing  arguments  deal  with  the 
more  immediate  effects  of  municipal  owner- 
ship ;  but  it  may  well  be  that  the  ultimate  and 
indirect  consequences  are  of  greater  importance. 
There  remain,  in  fact,  to  be  considered  other 
objections  to  municipal  ownership  which  are 
not  likely  to  be  seriously  felt  as  long  as  the 
bulk  of  the  industry  of  a  country  remains  in 
private  hands.  All  capital,  however  raised, 
represents  the  savings  of  a  community  ;  whilst 
goods  produced  with  the  aid  of  this  capital 
form  the  stream  out  of  which  payment  is  made 
for  all  work  and  for  all  saving ;  and  it  is 
urged  that  this  stream,  or  this  national  divi- 
dend, as  it  is  called,  is  likely  to  be  diminished 


i  io         MUNICIPAL  OWNERSHIP 

by  the  municipalisation  of  industries,  to  the 
obvious  detriment  of  all  classes.  In  consider- 
ing whether  civic  authorities  will,  on  an 
average,  invest  the  national  capital  so  as  to 
produce  more  or  less  goods  than  if  the  same 
sum  were  invested  by  a  number  of  private 
individuals  or  corporations,  each  using  an 
independent  judgment,  we  must  regard  the 
nation  as  a  whole,  and  we  must  not  consider 
results  in  separate  localities.  When  the  nation 
is  thus  regarded,  it  becomes  evident  that  if 
municipalities  confine  themselves  to  the  pur- 
chase of  going  concerns,  or  to  the  initiation 
of  such  services  as  would,  in  any  case,  cer- 
tainly be  established  by  private  proprietors — if, 
in  fact,  they  do  not  by  their  action  directly 
alter  the  investment  of  the  national  capital, 
then  there  is  no  prima  facie  reason  why  muni- 
cipalisation in  these  circumstances  should 
affect  the  productivity  of  the  national  capital. 

It  is  in  cases  where  cities  step  beyond  these 
limits  that  harmful  results  are  more  likely  to 
arise  as  regards  the  investment  of  capital. 
Town  councillors  must  regard  themselves  as 
trustees  for  money  raised  by  taxation  from 
citizens,  and  this  may  make  trlem^ecline  to 
extend  their  systems  of  street  railways,  for 
example,  into  districts  where  losses  might 


THE   NATIONAL   DIVIDEND       in 

possibly  be  incurred,  even  though  such  ex- 
tensions would  be  legitimate  speculations  for 
private  and  willing  subscribers :  a  caution 
which  may  make  the  average  receipts  per  mile 
of  municipal  street  railways  higher  than  that 
of  private  street  railways.  On  the  other  hand, 
it  has  already  been  pointed  out  in  connec- 
tion with  financial  considerations  that  various 
circumstances,  including  the  absence  of  that 
admirable  automatic  regulator  of  private  invest- 
ments, the  fear  of  personal  losses,  tend  to 
make  municipalities  invest  the  funds  at  their 
disposal  in  a  rash  and  unremunerative  manner. 
Municipal  authorities  are,  in  fact,  likely  to 
sometimes  cautious  where  they  should  be  pro- 
gressive, and  sometimes  progressive  where 
they  should  be  cautious ;  and,  if  they  enter 
deeply  into  industrial  enterprises,  there  is 
likely  to  be  a  shrinkage  in  the  national 
dividend,  and  a  lowering  of  the  real  reward/ 
to  all  classes  for  their  work  or  saving.  In 
short,  municipal  ownership  in  the  constructive 
stage  of  industry  is  likely  to  be  very  harmful. 
Amongst  the  objections  to  municipal  owner- 
ship, the  consequent  increase  of  municipal 
indebtedness  is  frequently  brought  forward  in 
England.  Putting  aside  as  being  out  of  the 
question  the  possibility  of  property  being 


ii2         MUNICIPAL  OWNERSHIP 

taken  by  the  State  without  any  compensation 
being  given  to  the  expropriated  proprietors, 
the  establishment  of  all  municipal  industries 
necessitates  the  raising  of  money  by  loans  or 
taxation,  the  amount  required  being  generally 
greater  where  industries  are  to  be  operated  by 
the  direct  employment  of  labour  by  the  muni- 
cipalities than  if  to  be  leased  to  private 
corporations.  Now  the  amount  borrowed  for 
such  purposes,  so  it  is  roundly  declared  by 
the  opponents  of  municipal  ownership,  is  so 
great  that  the  financial  condition  of  many 
English  cities  is  distinctly  alarming.  In  reply 
to  these  pessimistic  warnings,  it  is  urged  that 
municipal  debts,  even  if  they  are  unduly 
large,  have  been  raised  for  many  other  pur- 
poses besides  industrial  enterprises  ;  that  they 
are  being  gradually  paid  off ;  that  as  to  the 
portion  of  the  debt  which  has  been  incurred 
in  the  purchase  of  industrial  works,  a  not 
inconsiderable  fraction  has  already  been  liqui- 
dated, whilst  the  properties  purchased  have 
increased  in  value  since  the  purchases ;  and 
that,  consequently,  the  industrial  assets  of 
English  cities  more  than  cover  their  corre- 
sponding liabilities.  It  is  true,  it  may  be 
added,  that  some  new  invention  may  super- 
sede gas,  for  example,  and  that,  consequently, 


MUNICIPAL   DEBTS  113 

most  of  the  capital  sunk  in  gas-works  may 
possibly  become  useless.  But,  until  this  catas- 
trophe becomes  imminent,  gas-works  will 
assuredly  be  found  in  all  cities  either  under 
public  or  private  ownership,  and  consequently, 
if  the  community  be  regarded  as  a  whole,  it 
appears  that  the  loss  of  capital  due  to  these 
works  becoming  obsolete  would  be  no  more 
and  no  less  injurious  whatever  method  of 
ownership  be  adopted.  It  follows,  so  the 
advocates  of  municipal  ownership  conclude, 
that  the  municipalisation  of  the  principal 
municipal  monopolies  is,  not  an  additional 
source  of  danger. 

This  reply  to  those  who  advocate  the  avoid- 
ance   of    municipal   ownership   because   of  the 
risks   involved    does,    it  appears    to    me,    con- 
siderably  lessen  the  force  of  their  arguments, 
at  all  events  in  the  crude  form  in  which  they 
are  generally  presented.     That  they  are  crude 
is  mainly  due  to  the  omission  to  take  sufficient 
account  of  the  fact  that  the  capital   of  muni-^ 
cipal  and  private  industries  is  raised  on  wholly  , 
different    terms.      When   a  city   raises  a   loan 
in   order  to  buy  private    electrical    works,    for 
example,    it    in    effect    forces    all    the    citizens^ 
within    the    taxable    area    to    take    part    in    a 
speculation     whether    they    wish     to    or    not, 

p 


ii4         MUNICIPAL  OWNERSHIP 

whether  they  intend  to  use  electricity  them- 
selves or  not,  and  whether  they  believe  it  a 
sound  investment  or  not.  The  civic  authorities, 
in  fact,  acquire  the  power  to  force  each  tax- 
payer to  borrow,  for  this  purpose,  on  the 
security  of  his  real  property  ;  and  not  only  to 
incur  this  liability  to  an  extent  proportionate 
to  his  own  holding,  but  also  to  go  security 
for  the  money  raised  on  the  real  estate  of  all 
his  neighbours.  This  statement  probably  needs 
explanation,  and,  in  explaining  it,  it  will  be 
best  for  me  to  deal  with  England  only  on 
account  of  my  imperfect  knowledge  of  American 
legislation. 

If  the  taxation  in  any  city  is  increasing, 
owners  of  houses  and  manufactories  may  try 
to  better  their  condition  by  migrating  to  other 
localities.  An  important  firm  has  recently 
announced  its  intention  of  quitting  the  banks 
of  the  Thames  in  order  to  re-establish  its  works 
in  some  less  heavily-taxed  district ;  and  other 
corporations  are  considering  the  advisability  of 
taking  such  a  step.  The  possibility  of  a  con- 
siderable migration  resulting  from  the  burden 
of  local  taxation  is  not,  therefore,  merely  a  bad 
dream,  but  is  a  condition  of  things  which  may 
actually  have  to  be  faced.  When  houses  are 
left  empty,  little  or  no  local  taxation  is  levied 


MUNICIPAL   DEBTS  115 

on  the  owners,  and,  when  many  houses  are 
thrown  on  the  market,  there  is,  as  a  rule,  a 
fall  in  their  value,  and  consequently  in  the 
local  taxation  levied  thereon.  But  a  diminu- 
tion in  the  revenue  cannot  be  tolerated,  at  all 
events  in  so  far  as  it  is  needed  for  the  charges 
for  sinking  funds  and  for  interest  on  municipal 
industrial  debts  ;  and  this  loss  of  income  must 
be  made  good  somehow.  In  fact,  the  remaining 
tax-payers  must  take  up  the  burden  cast  off  by 
the  fugitives.  If  a  city  with  a  large  industrial 
municipal  debt  should  begin  to  decline  in 
prosperity,  as  may  well  occur  in  mining 
districts,  with  the  departure  of  each  firm  or 
citizen,  the  taxation  levied  on  the  remainder 
must  necessarily  be  increased.  With  every 
such  increase  in  taxation  the  temptation  to  fly 
to  more  favoured  regions  would  increase  also ; 
and  thus  we  have  a  circle  of  causes  tending 
to  make  the  city  go  from  bad  to  worse — 
slowly  at  first,  then  quicker  and  quicker, 
and  finally  full  gallop  straight  to  municipal 
bankruptcy. 

It  is  true  that  such  a  catastrophe  is  not  on 
record,  and  it  is  always  difficult  to  estimate 
the  importance  which  should  be  attached  to 
hypothetical  dangers.  Whether  the  picture 
just  drawn  is  fanciful  or  not,  time  alone  will 


ii6         MUNICIPAL  OWNERSHIP 

disclose  ;  but  a  possibility  so  serious  ought  to 
count  for  something  in  this  controversy. 

Another  objection,  and  one  of  the  very 
strongest  that  can  be  urged  against  municipal 
ownership,  more  especially  if  accompanied  by 
direct  employment,  is  that  a  bureaucratic  system 
always  tends  to  destroy  initiative  and  to  create 
stagnation.  This  want  of  initiative  in  govern- 
vment  services  is  due  both  to  its  machinery 
being  larger  and  more  unwieldy  than  that  of 
private  industry,  and  to  the  absence  of  the 
stimulus  of  personal  gain.  This  subject  has 
also  been  dealt  with  in  connection  with  finance  ; 
but  the  resulting  evils  are  such  as  would  not 
always  show  themselves  quickly  in  municipal 
profit  and  loss  accounts.  Civic  authorities 
may  faithfully  copy  private  firms  in  all  their 
business  arrangements ;  and,  although  they 
may  initiate  nothing,  yet  their  industrial  balance 
sheets  may  compare  not  unfavourably  with  those 
of  the  private  corporations  thus  copied.  But, 
if  all  industry  were  in  municipal  hands,  this 
want  of  initiative  would  produce  disastrous 
results :  for  then  there  would  be  no  one  to 
copy.  In  deciding  what  businesses  they  will 
undertake  and  how  they  will  undertake  them, 
in  no  country  in  the  world  are  private  corpora- 
tions given  a  freer  hand  than  in  the  United 


LOSS   OF   INITIATIVE  117 

States ;  and  there  is  no  country  which  owes 
more  to  the  inventive  genius  of  its  citizens. 
Those  who  doubt  whether  these  facts  have  any 
connection  with  each  other  will  do  well  to 
enquire  what  new  inventions  or  processes  first 
made  their  appearance  in  State  workshops  or 
offices.  Initiative  of  all  kinds  is  inadequately 
rewarded  by  democratic  governments,  and  the 
spirit  of  progress  amongst  individuals  is,  more- 
over, of  slow  growth.  The  establishment  of  a 
bureaucratic  system  in  any  group  of  industries 
in  this  country  would  inevitably  lead  to  the 
slow  decay  of  the  inventive  spirit  as  regards 
those  industries,  with  a  corresponding  loss  to 
the  nation. 

There  is  again  another  reason  for  anticipating 
that  private  industry  will  be  more  progressive 
than  municipal  industry,  and  that  is  that  there 
is  an  increase  in  the  tendency  for  industries  to 
become  monopolies  when  they  have  been  muni- 
cipalised. It  is  true  that  when  an  industry  is 
an  absolute  monopoly,  it  cannot  become  more 
monopolistic,  and  no  harm  can  be  done  by  a 
step  producing  such  a  general  tendency.  No 
industry  is,  however,  wholly  free  from  indirect 
competition,  except  domestic  water  supply ;  and 
the  tendency  to  become  a  monopoly  in  all  other 
industries  can  therefore  be  increased.  It  is  also 


ii8         MUNICIPAL   OWNERSHIP 

true  that  the  danger  is  one  to  be  feared  in  the 
future  rather  than  one  to  be  demonstrated  as 
being  serious  at  present.  But  the  advocates  of 
municipal  industry  in  England  have  distinctly 
declared  that  its  freedom  from  private  com- 
petition is  part  of  their  policy ;  municipal 
authorities  are  in  a  better  position  in  many 
ways  than  private  corporations  to  protect  their 
industries  from  competition  ;  and  it  is  certain 
that  industries  will  generally  tend  to  become 
closer  monopolies  in  public  than  in  private 
hands. 

The  desire  of  civic  authorities  to  avoid 
competition  first  shows  its  effects  in  private 
competitors  being  kept  off  the  as  yet  unoccu- 
pied field.  As  already  mentioned,  this  result 
was  at  one  time  to  a  large  extent  obtained  in 
England  in  the  electric  industry  by  the  offer  of 
prohibitively  rigid  terms  to  private  speculators  ; 
whilst,  in  cases  where  private  corporations  were 
willing  to  come  forward,  municipalities  have 
often  been  able  to  prevent  the  grant  of  the 
necessary  franchises.  These  are  the  reasons 
why  harmful  consequences  due  to  a  limitation 
of  competition  are  likely  to  be  felt  in  the  con- 
structive stage  of  industry,  when,  as  has  been 
seen,  a  monopoly  need  never  be  tolerated. 
The  desire  to  check  competition,  direct  and 


MUNICIPAL   PROTECTION        119 

indirect,  in  the  productive  stage,  that  is  when 
civic  authorities  have  undertaken  the  manage- 
ment of  any  industry,  has  thus  far  produced 
far  less  serious  results.  Municipalities  have,  no 
doubt,  established  both  gas-works  and  electric 
lighting  works,  in  which  case  true  competition 
between  these  industries  can  hardly  be  said  to 
exist.  Then,  again,  local  authorities  have  been 
known  to  refuse  licences  to  motor  omnibuses  on 
the  alleged  ground  that  they  would  be  noisy. 
Whether  in  such  cases  the  desire  to  avoid  com- 
petition was  altogether  without  influence  on 
the  actions  of  the  local  authorities  may  be 
doubted  ;  for  the  human  mind  being  such  a 
strange  machine,  it  is  quite  possible  that  those 
in  power  may  have  been  unaware  of  all  their 
underlying  motives.  Few  men  can  play  well 
the  parts  of  judge  and  aggrieved  party  at  the 
same  time.  These  checks  on  competition  in 
the  productive  stage  of  industry,  though  they 
are  not  serious,  nevertheless  serve  to  indicate 
the  probable  trend  of  events  in  the  future. 

The  ^tendency  for  industries  in  municipal 
hands  to  become  monopolies  has  been  spoken 
of  as  a  danger ;  but  if  we  should  pass 
on  to  discuss  this  danger  in  detail,  we  should 
find  ourselves  entering  on  the  great  con- 
troversy between  individualism  and  socialism. 


120         MUNICIPAL  OWNERSHIP 

^Individualists  hold  that  competition  benefits 
mankind  by  stimulating  progress  of  every  kind, 
and  by  enabling  the  citizen  to  get  what  he 
wants,  where  he  wants  it,  and  as  cheaply  as 
possible.  Socialism,  he  believes,  is  absolutely 
incompatible  with  freedom.  To  all  these  argu- 
ments the  socialist  replies  that  to  make  an 
/  industry  become  a  monopoly  in  the  hands  of  a 
state  would  be  both  a  social  and  an  economic 

\benefit.  Economically  the  creation  of  a  mono- 
poly would  save  the  immense  waste  of  energy 
in  the  present  competitive  system,  with  its 
advertisements,  its  unnecessary  middlemen  and 
its  duplicate  plants.  Regarded  socially,  progress 
would  be  more  rapid  with  municipal  owner- 
ship if  that  progress  were  measured  by  true 
standards ;  because  the  capital  would  be  ex- 
pended for  the  true  good  of  the  whole  com- 
munity. The  desire  for  the  common  good 
would,  under  a  socialistic  system,  make  up  for 
the  loss  of  the  spur  of  private  interests.  Lastly, 
to  wind  up  the  argument  for  socialism,  the 
survival  of  the  fittest  means  the  degradation 
of  the  weakest ;  and  the  modern  competitive 
N^ struggle  is  not  only  wasteful  but  cruel. 

Summing  up  the  arguments  concerning  muni- 
cipal   ownership    without    reference    to    direct 

/employment,    we   find    that   the   risk   involved, 


SUMMARY  121 

the  anticipated  decrease  in  the  productivity 
of  industry,  the  lessening  of  initiative  and 
inventive  capacity,  the  increase  in  municipal 
indebtedness  and  the  tendency  to  create  or 
increase  industrial  monopolies,  form  the  founda- 
tions of  the  arguments  against  municipal  owner^x 
ship  and  in  favour  of  private  industry ;  whilst 
opposing  them  are  to  be  found  the  whole 
battery  of  arguments  in  favour  of  socialism.  In 
cases  where  the  balance  is  held  to  go  against 
municipal  ownership,  the  case  against  direct 
employment  by  municipalities  is  thus  much 
strengthened ;  for  direct  employment  cannot 
exist  without  municipal  ownership. 

It  is  true  that  the  arguments  for  socialism 
have  been  given  in  briefest  outline.  But  it  is 
not  proposed  here  to  enlarge  upon  them,  partly 
because  it  is  perhaps  best  that  the  case  against 
individualism  should  be  stated  by  those  who 
are,  not  more  impressed,  but  more  convinced 
by  it,  than  myself.  Some  remarks  will  be 
made,  at  the  conclusion  of  this  lecture,  on  the 
connection  between  socialism  and  municipal 
ownership ;  but  here  it  is  sufficient  to  point  out 
that  it  is  logical  to  hold  that  the  moral  are  far 
more  important  than  the  financial  aspects  of 
economic  questions,  to  admit  the  crying  evils 
of  our  individualistic  system,  and  yet  to  deny 

Q 


122         MUNICIPAL  OWNERSHIP 

that  any  suggested  socialistic  system  would  be 
both  practicable  and  beneficial.  The  foregoing 
summary,  moreover,  points  to  the  conclusion 
that  individualists  who  adopt  this  position  must 
reject  a  large  increase  in  municipal  ownership 
both  on  its  own  merits  and  as  a  stepping-stone 
to  some  advanced  socialistic  system. 


GENERAL  CONCLUSIONS 

In  winding  up  this  whole  discussion  on  muni- 
cipal ownership,  it  is  natural  to  ask  whether  we 
cannot  discover  some  formula  by  means  of 
which  it  would  be  possible  at  once  to  decide 
whether  any  given  industry  should  be  muni- 
cipalised or  not.  Such  a  search  would,  in  my 
opinion,  be  made  in  vain,  and  all  the  conflict- 
ing arguments  must  be  weighed  in  the  balance 
as  regards  each  separate  industry.  Accepting 
this  view,  the  conclusions  arrived  at  in  these 
lectures  may  be  epitomised  in  the  following 
sentences : 

(a)  The  main  question  to  be  considered  is 
when  is  the  direct  employment  of 
labour  by  municipalities  desirable ; 
for  municipal  ownership  without 


GENERAL   CONCLUSIONS          123 

direct  employment  is  not  often 
seriously  demanded. 

(b)  The   objections  to    municipal   industry 

are  generally  much  greater  if  the 
industry  is  operated  by  direct  em- 
ployment than  if  it  is  leased  out  for 
management  to  private  proprietors  ; 
and  the  objections  to  municipal 
ownership,  however  the  industry  be 
operated,  are  greater  in  the  con- 
structive than  in  the  productive 
stage  of  industry. 

(c)  The    case    for    direct    employment    is 

strongest  in  the  productive  stage  of 
an  industry  which  tends  to  become  a 
monopoly,  when  the  goods  supplied 
are  of  great  importance  to  nearly 
the  whole  of  the  community,  and 
when  the  cost  of  supply  in  the 
future  is  not  easily  estimated. 

(d)  Where  direct  employment  is   rejected, 

the  case  for  municipal  ownership 
is  strongest  when  a  perpetual  fran- 
chise has  been  granted  to  private 
proprietors,  by  means  of  which  they 
have  acquired  the  control  of  a 
monopoly. 

(e)  Each  case  of  municipalisation  must  be 


i24         MUNICIPAL  OWNERSHIP 

judged  on  its  own  merits ;  and  if 
either  the  civic  authorities  are  weak 
and  corruptible,  or  the  number  of 
men  employed  in  the  industry  is 
great,  or  if  it  be  one  likely  to  afford 
scope  for  much  inventive  capacity,  or 
there  is  any  serious  competition,  then 
the  case  against  municipal  ownership 
is  always  strong. 

(/)  Where  competition  is  free  and  effective, 
municipal  industry  is  never  to  be 
recommended. 

(g)  The  choice  as  regards  industries  tending 
to  become  monopolies  lies  between 
municipal  industry  and  the  better 
control  of  private  industry  ;  for  the 
demand  for  reform  is  genuine. 

Merely  to  arrive  at  these  general  conclusions 
as  the  result  of  our  labours  is,  no  doubt,  very 
unsatisfactory.  But  truth  is  often  unsatis- 
factory, and  that  is  one  of  the  reasons  it  is 
not  more  often  spoken.  Neither  students  nor 
politicians  can  do  more  than  master  the  argu- 
ments in  this  difficult  controversy,  arrive  at 
broad  generalisations,  and  apply  them  fear- 
lessly in  making  decisions  with  regard  to 
particular  services. 


MUNICIPAL  SOCIALISM  125 


SOCIALISTIC  IDEALS  AND  MUNICIPAL 
OWNERSHIP 

Our  main  enquiry  is,  therefore,  thus  con- 
cluded. Many  questions  have  been  perforce 
omitted ;  and,  in  the  short  time  available, 
an  attempt  will  be  made  to  fill  up  some  of 
the  gaps  thus  left  by  considering  briefly  the 
connection  between  municipal  industry  and 
socialism. 

Thus  far  it  has  been  assumed  that  muni- 
cipal ownership  is  an  undoubted  step  towards 
socialism ;  and  it  has  no  doubt  often  been 
asserted  that  this  will  prove  to  be  the  case 
because  the  socialistic  party  will  be  assisted 
in  capturing  the  political  machine  by  means 
of  the  direct  employment  of  labour.  Whether 
this  is  a  correct  forecast  or  not,  will  not  be 
considered  :  because  these  lectures  do  not  deal 
with  politics.  The  question  now  to  be  discussed 
is  the  extent  to  which  we  are  realising  the 
economical  ideals  of  socialists  by  the  present 
method  of  establishing  municipal  ownership. 
The  word  socialism  covers  many  meanings, 
and  few  of  us  like  to  be  called  upon  to  define 
it  rigorously.  It  has  been  suggested  by  an 


126  MUNICIPAL  SOCIALISM 

eminent  German  authority  that  the  somewhat 
vague  aspirations  of  socialists  are  the  result 
of  their  belief  in  two  not  wholly  consistent 
rights :  namely,  the  right  of  the  labourer  to 
the  whole  product  of  labour,  and  his  right 
to  work  and  wages.  The  demand  for  these 
rights  will,  at  all  events,  serve  as  a  basis  for 
my  remarks. 

As  to  the  first  of  these  rights,  those  who 
make  a  crude  demand  that  the  whole  product 
of  labour  shall  be  awarded  to  the  labourer 
will  generally  be  found  to  have  but  hazy 
notions  concerning  the  play  of  economic  forces. 
It  is,  therefore,  sufficient  here  to  note  that  this 
demand  is  closely  connected  with  the  demand 
for  the  readjustment  of  the  distribution  of 
wealth  on  the  ground  that  the  owners  of 
capital  are  in  receipt  of  unearned  incomes, 
which  should,  at  all  events,  be  diminished 
for  the  benefit  of  those  who  toil.  That  wealth 
might  be  better  distributed  many  of  us  are 
prepared  to  assert;  and  it  is,  therefore,  worth 
enquiring  whether  municipal  industry  as  at 
present  practised  is,  in  truth,  a  step  in  the 
desired  direction. 

Obviously  the  results  obtained  will  depend 
on  the  methods  of  municipalisation  adopted. 
Here  it  is  not  a  question  as  to  what  would 


MUNICIPAL  SOCIALISM          127 

occur  if  industries  were  appropriated  with 
inadequate  compensation  to  the  owners.  We 
are  discussing  municipal  industry  as  it  now 
exists,  and  in  order  to  narrow  the  issue,  the 
case  of  the  purchase  of  electrical  works  by 
an  English  municipality  at  their  market  value 
will  be  considered  as  a  typical  instance.  Now 
the  conclusion  arrived  at  on  a  priori  grounds 
in  a  previous  lecture  was  that  the  profits 
made  by  such  a  municipal  venture  would  not 
necessarily  represent  the  gain  of  an  equal 
amount ;  and  that,  assuming  the  municipal 
management  to  be  very  nearly  as  economical 
as  private  management,  the  municipal  revenues 
would  thus  be  increased  sufficiently  to  cover  the 
interest  on  the  municipal  debts  thus  incurred, 
but  not  to  cover  a  sinking  fund  for  the 
redemption  of  those  debts.  This  conclusion 
indicates,  I  believe,  results  more  favourable 
than  those  which  would  in  reality  be  obtained  ; 
because  municipal  management  is,  as  a  rule, 
not  nearly  as  economical  as  private  manage- 
ment. But,  even  assuming  it  to  be  correct, 
the  whole  of  the  sinking  fund,  which  is 
obligatory  in  England,  would  have  to  be 
provided  out  of  taxation  which,  with  private 
industry  properly  regulated,  would  be  un- 
necessary but  for  this  municipal  venture. 


128  MUNICIPAL  SOCIALISM 

But  if  a  sinking  fund  for  this  purpose  thus 
necessitates  the  imposition  of  additional  taxa- 
tion, it  is,  in  fact,  equivalent  to  citizens  being 
forced  to  make  an  investment  in  return  for 
which  no  benefit  will  be  received  by  any  one 
during  the  twenty  to  forty  years  during  which 
the  sinking  fund  runs :  that  is,  assuming  that 
the  instalment  system  is  in  force.  At  the  end 
of  this  period,  not  only  will  no  tax  be  levied 
for  the  sinking  fund,  but  the  interest  on  the 
loans  raised  for  the  purchase  of  the  electrical 
works  will  no  longer  have  to  be  found  out 
of  the  profits  of  those  works,  and  a  consider- 
able surplus  from  these  electrical  works  will  then 
be  available  as  part  of  the  municipal  revenues. 
In  other  words,  the  community  will  begin  to 
draw  the  interest  on  its  investment.  Thus  there 
are  two  periods  to  be  considered :  there  is  the 
period  of  investment,  as  it  may  be  called,  when 
taxation  is  being  levied  for  the  purchase  of 
the  works  ;  and  there  is  the  period  of  reward, 
when  the  city  reaps  the  benefits  arising  from 
the  sacrifices  of  its  citizens. 

Having  made  these  various  assumptions, 
which  necessitate,  in  my  opinion,  a  too  favour- 
able view  of  municipal  management  being 
taken,  and  which  merely  postulate  well- 
regulated  private  industry,  the  problems  for 


INCIDENCE   OF  TAXATION       129 

consideration  are  as  follows : — On  whom  does 
the  burden  of  the  extra  taxation  fall  during 
the  period  of  investment?  To  whom  do  the 
benefits,  due  to  the  increase  of  revenue,  accrue 
during  the  period  of  rewards?  And,  lastly, 
will  the  final  result  be  a  more  equitable  dis- 
tribution of  wealth  amongst  the  different  classes 
of  the  community? 

As  the  first  of  these  problems,  or  that  of  the 
incidence  of  local  taxation,  has  been  much 
debated,  it  need  not  here  be  discussed.  It 
must,  however,  be  noted  that  economists  gener- 
ally agree  that  normally  both  landlords  and 
tenants  are  hit  to  some  extent  by  onerous  local 
taxation,  whoever  pays  the  tax-gatherer ;  and, 
this  being  so,  the  payment  of  a  municipal  sink- 
ing fund  out  of  taxation  is  equivalent  to  forcing 
both  parties  to  invest  money  in  municipal  works, 
an  investment  for  which  no  return  is  received 
during  the  period  of  investment. 

Difficult  as  is  this  question,  it  is  even 
harder  to  determine  who  it  is  who,  in  truth, 
will  benefit  by  the  increase  in  the  municipal 
revenues  which  will  be  received  after  the 
municipal  industrial  debts  have  been  redeemed. 
The  distribution  of  the  benefits  during  the 
period  of  rewards  will  obviously  depend  on 
the  policy  adopted  by  the  civic  authorities. 

R 


i3o  MUNICIPAL  SOCIALISM 

Many  alternatives  will  be  open  to  them.  They 
may  then  expend  this  additional  revenue  by 
raising  the  wages  of  their  municipal  employees  ; 
but  to  favour  them  thus  is  unjustifiable,  and 
this  alternative  may  therefore  be  dismissed. 
Again,  they  may  increase  the  local  expenditure  : 
a  very  probable  proceeding.  Or  they  may 
lower  the  price  of  the  electricity  they  sell,  and 
thus  reduce  the  revenue  to  its  previous  level. 
Or,  lastly,  this  same  result  may  be  obtained 
by  a  reduction  of  taxation.  These  three  last 
alternatives  must  be  briefly  considered,  with 
reference  not  only  to  direct  results,  but  also  to 
those  indirect  considerations  which  so  often 
in  economics  give  the  lie  to  obvious  con- 
clusions. 

As  to  the  first  alternative,  if,  during  the 
period  of  rewards,  the  local  expenditure  will 
be  increased  in  such  a  manner  that  the  benefits 
to  the  poorer  classes  will  be  proportionately 
greater  than  the  injury  which  had  been  in- 
flicted on  them  by  taxation  during  the  period 
of  investment,  it  follows  that  the  rich  will 
have  been  taxed  in  the  first  period  for  the 
ultimate  benefit  of  the  poor.  This  is,  no 
doubt,  a  result  in  accordance  with  socialistic 
aims.  The  services  for  which  this  additional 
expenditure  is  to  be  incurred  must,  however, 


REDUCTIONS   IN   PRICES         131 

be  carefully  selected  in  order  to  make  it  certain 
that  the  result  will  not  be  the  opposite  to  that 
desired. 

Passing  on  to  the  second  alternative,  namely, 
a  reduction  in  the  price  of  goods  sold  by 
municipalities,  the  effect  on  the  distribution 
of  wealth  would  depend  on  the  nature  of  those 
goods.  In  the  case  of  goods  of  very  general 
consumption,  such  as  gas  in  England,  it  is 
probable  that  a  reduction  in  price  would  also 
be  in  effect  the  grant  of  a  benefit  to  the  poor 
at  the  expense  of  the  rich.  There  are,  how- 
ever, certain  economic  objections  to  goods 
being  sold  below  what  may  be  called  their 
competitive  price,  some  of  the  evil  conse- 
quences of  the  award  of  a  bounty  to  a  manu- 
facturer thus  being  produced.  Moreover, 
municipal  industry  is  not  now  confined  to  the 
manufacture  of  "  necessaries,"  and  a  lowering 
of  the  price  of  State-made  luxuries  below  a 
certain  level  would  be  in  effect  to  tax  the  poor 
for  the  benefit  of  the  rich.  Socialists  would 
defeat  their  own  aims  by  reducing  the  price 
of  electricity  in  England,  for  example,  where 
it  is  chiefly  used  by  well-to-do  people. 

With  reference  to  the  last  alternative  to  be 
considered,  namely,  the  reduction  of  taxation 
during  the  period  of  rewards  on  account  of 


•iTy 


132  MUNICIPAL  SOCIALISM 

the  profits  arising  from  municipal  industries, 
this  on  general  grounds  is  the  rational  policy 
to  adopt ;  for,  as  it  was  the  tax-payers  as  a 
body  who  supplied  the  funds  for  the  purchase 
of  the  municipalised  industries,  the  tax-payers 
as  a  body  should  reap  the  rewards  coming 
from  such  investments.  If  this  were  the  policy 
adopted,  taxation  would  fall  on  the  different 
classes  of  the  community  in  the  first  period  in 
the  same  proportion  as  that  in  which  the 
relief  from  taxation,  or  the  resulting  benefits, 
would  be  felt  in  the  second  period ;  and  the 
obvious  conclusion  is  that  the  effect  on  the  dis- 
tribution of  wealth  would  be  neither  contrary 
nor  favourable  to  socialistic  ideas. 

Thus  far  only  the  more  obvious  results  have 
been  held  in  view.  Of  the  indirect  conse- 
quences, the  first  to  be  noted  is  that  due  to 
the  fact  that  an  increase  of  taxation  resulting 
from  the  payment  of  a  sinking  fund  on  urban 
debts  would  fall  on  the  city  only,  and  not 
on  the  country  round  it.  There  are  always 
some  persons  on  the  actual  margin  of  doubt 
whether  to  abandon  city  life,  and  they  would 
be  induced  to  migrate  into  the  country  by  any 
increase  in  urban  local  taxation.  There  would 
be,  therefore,  a  certain  outflow  of  the  popula- 
tion in  the  period  of  investment,  and  one  result 


TRANSFER  OF   BENEFITS        133 

of  this  outflow  would  be  that  rents  would 
fall.  Taking  the  extreme  theoretical  limit,  the 
rent  of  a  house  might  fall  by  an  amount  equal 
to  the  increase  in  taxation  thereon ;  or,  in 
other  words,  the  remaining  tax-payers  might  be 
able  to  shift  the  whole  burden  of  the  increase 
of  taxation  on  to  the  shoulders  of  their  land- 
lords. It  is  practically  certain  that  this  limit 
would  not  be  reached  ;  but  it  is  equally  certain 
that  urban  landlords  would  find  their  rents 
reduced  to  a  certain  extent  in  consequence  of 
any  increase  of  local  taxation  due  to  municipal 
industrial  sinking  funds. 

It  may  be  urged  with  some  truth,  however, 
that  time  would  not  be  given  during  the 
period  of  investment  for  the  increase  of  taxa- 
tion to  produce  its  full  effects.  But,  in  con- 
sidering the  effects  in  the  subsequent  period, 
this  objection  cannot  be  urged ;  because  the 
benefits  due  to  the  increase  of  revenue  conse- 
quent on  the  redemption  of  the  municipal 
industrial  debts  would  last  for  an  indefinite 
period.  During  this  period,  the  period  of 
rewards,  it  can  be  shown  that  an  opposite 
effect  to  that  produced  during  the  period  of 
investment  would  be  experienced :  namely, 
that  there  would  be  an  inflow  of  the  popula- 
tion, and  that  some  of  the  resulting  benefits 


i34  MUNICIPAL  SOCIALISM 

would  be  transferred  to  the  landlords  from 
their  tenants  in  the  form  of  an  increase  of  rent 
due  to  this  increased  attractiveness  of  the 
town. 

The  effect  of  such  changes  in  the  conditions 
of  urban  life  is,  therefore,  that,  during  the 
period  of  investment,  when  taxation  is  being 
raised  for  a  sinking  fund,  ground  landlords  are 
damaged  by  a  decrease  in  rents,  whilst  in  the 
subsequent  period  they  are  benefited  by  a 
rise  in  rents ;  and,  in  the  extreme  limit,  the 
whole  tax  falls  on  the  landlords  and  the  whole 
benefit  accrues  to  them.  If  this  limit  were 
reached,  municipal  industry  would  cause  no 
transfer  whatever  of  wealth  from  class  to 
class ;  and  the  more  nearly  it  is  approached, 
the  smaller  becomes  the  field  in  which  social- 
istic effects  can  be  produced. 

Time  permits  me  to  mention  only  one  other 
of  the  many  influences  which  tend  to  modify 
the  primary  effects  of  municipal  industry  on 
the  distribution  of  wealth.  By  taxing  the 
richer  classes,  capital  might  be  transferred 
from  its  owners  to  the  State ;  whilst,  in  the 
case  of  the  poor,  such  taxation  as  was  thrown 
on  them  might  merely  diminish  their  available 
incomes.  Assuming  the  burden  of  taxation  to 
fall  in  this  manner  on  rich  and  poor,  and 


TAXATION   OF  CAPITAL          135 

assuming  the  revenue  derived  from  the  invest- 
ment of  the  funds  thus  raised  in  municipal 
industries  to  be  used  for  the  benefit  of  all 
classes,  the  result  would,  no  doubt,  be  that 
the  poorer  classes  would  be  benefited  at  the 
expense  of  the  rich. 

Any  such  method  of  compelling  the  rich  to 
invest  a  large  portion  of  their  capital  for  the 
benefit  of  the  community  at  large  instead  of 
for  their  own  benefit  would  be,  however,  sur- 
rounded by  dangers  if  carried  very  far.  In 
the  first  place,  a  great  increase  in  the  taxa- 
tion falling  on  the  captains  of  industry  would 
lessen  their  energy,  and  thus  check  the  com- 
mercial progress  of  the  nation,  to  the  material 
injury  of  all  classes.  Again,  there  would  be 
a  temptation  to  expend  some  of  the  capital 
thus  drawn  from  the  richer  classes,  not  in  the 
establishment  of  municipal  industries,  but  in 
ordinary  current  municipal  expenditure  ;  and,  if 
this  were  done,  the  national  savings  would  thus 
be  reduced,  and  progress  to  that  extent  would 
be  checked.  Moreover,  many  persons  called 
poor  are,  nevertheless,  truly  capitalists,  because 
they  belong  to  trades  unions,  benefit  clubs,  or 
insurance  societies ;  and  taxation  must  be  skil- 
fully arranged  not  to  draw  a  larger  proportion 
of  capital  from  the  poorer  capitalists  than  from 


136  MUNICIPAL  SOCIALISM 

the  richer  ones.  Lastly,  in  spite  of  this  taxa- 
tion, the  richer  classes  might  become  still  more 
relatively  rich  ;  and  their  portion  of  the  benefits 
to  be  derived  from  municipal  investments  might 
in  this  case  tend  to  increase  rather  than  to 
diminish.  For  these  reasons  it  is,  therefore,  not 
unlikely  that  this  plan  for  benefiting  the  poor 
might  increase  either  their  actual  or  their 
relative  poverty.  But  if  all  these  dangers  could 
be  avoided,  no  doubt  by  taxing  the  capital  of 
the  rich  for  the  sake  of  establishing  municipal 
industries,  socialists  would  be  travelling  along 
the  path  sought  by  them. 

To  sum  up  this  discussion  on  distribution,  it 
appears  that,  if  the  poor  are  to  be  especially 
benefited  by  the  establishment  of  municipal 
industries,  either  capital  must  be  drawn  in 
greater  proportion  from  the  rich  than  from  the 
poor,  or  the  revenues  thus  obtained  must  be 
devoted  either  to  a  reduction  in  the  price  of  the 
necessaries  of  life  produced  by  municipal  enter- 
prise or  to  some  expenditure  especially  designed 
to  benefit  the  poorer  classes.  But,  if  the 
revenue  is  raised  by  merely  taxing  incomes, 
and  if  the  proceeds  of  any  municipal  investment 
are  devoted  to  a  reduction  in  taxation,  which 
is  the  rational  policy  to  adopt,  municipal 
industry  will  benefit  or  injure  all  classes  alike. 


REDISTRIBUTION  OF   WEALTH     137 

Again,  the  poor  may  find  themselves  poorer 
from  what  is  called  a  forward  municipal  policy 
if  the  prices  of  luxuries  are  thus  reduced,  or  if 
the  progress  of  the  country  is  thus  checked, 
or  from  other  indirect  effects.  Lastly,  the 
scope  for  the  production  of  socialistic  effects 
may  be  greatly  reduced  in  consequence  of 
both  burdens  and  benefits  being  transferred 
to  ground  landlords.  It  appears,  therefore, 
that  the  establishment  of  municipal  industries 
according  to  existing  English  methods  is  a 
clumsy,  and  an  uncertain,  and,  if  carried  far,  a 
dangerous  method  of  attempting  to  bring  about 
a  redistribution  of  wealth. 

Even  if  it  be  assumed,  however,  that  it  would 
be  wise  to  raise  money  by  taxation  and  to 
invest  it  for  the  benefit  of  any  selected  class  of 
the  community,  it  still  remains  to  be  asked  why 
it  should  be  invested  in  municipal  industries. 
This  is,  indeed,  the  more  important  question 
in  existing  circumstances.  A  wise  man  in 
making  an  investment  looks  mainly  to  the 
return  which  it  will  yield  and  to  its  safety ;  and 
a  wise  city  should  act  in  like  manner.  As  to 
the  interest  on  the  investment,  and  remembering 
the  difference  between  gains  and  profits,  we  have 
seen  reason  to  believe  that  municipal  industry 
has,  to  say  the  least,  nothing  especially  to 

s 


138  MUNICIPAL  SOCIALISM 

recommend  it  as  an  investment.  Putting  the 
question  of  interest  entirely  aside,  however, 
and  looking  only  to  safety,  the  wise  man  who 
is  in  debt  will  normally  pay  off  that  debt  with 
any  available  money  which  may  fall  into  his 
possession,  rather  than  use  it  for  some  specu- 
lative investment.  Again,  if  in  debt,  and  if 
raising  money  by  taxation  which  is  not  needed 
for  current  expenditure,  the  wise  city,  acting  in 
like  manner,  should  not  invest  that  money  for 
the  sake  of  making  a  profit,  but  should  rather 
use  it  to  pay  off  its  debts.  But  such  a  city 
must,  as  a  rule,  I  think,  impose  additional  taxa- 
tion for  the  sake  of  establishing  a  municipal 
industry,  though  the  fact  that  this  is  so  is,  as 
a  rule,  entirely  unperceived  ;  and  this  is,  there- 
fore, objectionable  if  the  municipal  industry  is 
established  for  the  sake  of  making  a  profit. 
It  is  objectionable,  because  if  the  city's  debts 
were  paid  off  by  this  additional  taxation,  the 
revenue  would  thus  also  be  increased,  and 
increased  in  a  safer  manner.  Thus,  if  the 
socialistic  plea  for  municipal  industry  is  that 
additional  revenue  can  thus  be  obtained  to  be 
used  for  the  benefit  of  the  poor,  this  plea  breaks 
down  entirely  in  the  case  of  all  cities  with 
debts  other  than  industrial  debts :  that  is,  in 
the  case  of  every  large  city  known  to  me. 


UNEARNED  INCREMENTS         139 

It  may,  perhaps,  be  urged  in  reply  that  by 
the  purchase  of  electrical  works,  a  city  will, 
at  all  events,  capture  in  future  the  unearned 
increment  of  value  due  to  its  own  growth  ;  and, 
for  this  purpose,  it  may  be  wise  to  run  into 
debt.  That  an  unearned  increment  of  value 
may  thus  be  captured  is  true.  But,  as  already 
pointed  out,  this  increment  may  in  effect  be 
partly  re-transferred  to  the  ground  landlords ; 
and,  moreover,  steps  cannot  be  taken  for  its 
capture  without  some  danger  of  the  unearned 
decrement  being  captured  instead.  The  main 
point,  however,  to  be  noted  is  that  the  unearned 
increment  can  be  captured  almost  equally  well, 
and  without  any  risk,  by  granting  suitable 
franchises  to  private  corporations. 

The  mention  of  this  subject  tempts  me  to 
diverge  in  order  to  point  out  that  municipal 
industry  may  create  a  new  form  of  unearned 
increment  of  income.  Take  the  case  of  a  city 
where  gas,  for  example,  is  being  sold  by  the 
civic  authorities  at  a  price  below  the  cost  at 
which  it  can  be  produced  in  neighbouring 
localities  :  this  result  being  due  to  the  purchase 
of  the  gas-works  by  the  city  out  of  the  compul- 
sory savings  of  its  citizens.  If  any  person  was 
to  migrate  to  that  city  from  any  neighbouring 
locality  where  he  had  not  been  thus  compelled 


140  MUNICIPAL  SOCIALISM 

to  save  for  the  purpose  of  purchasing  public 
gas-works,  would  not  the  purchase  of  gas 
below  cost  price  in  his  new  home  be  to  him 
an  entirely  unearned  decrement  of  expenditure? 
And  would  not  this,  or  any  other  similar 
advantage  arising  from  the  past  savings  of  his 
new  neighbours,  be  equivalent  to  an  unearned 
increment  of  income  ?  Yet  it  would  be  im- 
possible to  prevent  immigrants  from  gaining 
such  unmerited  advantages  without  restricting 
the  right  to  free  movement  on  the  part  of  the 
people,  a  right  which  is  essential  to  the  progress 
and  prosperity  of  the  working  classes.  May 
not  municipal  industry,  therefore,  give  rise  in 
the  distant  future  to  a  temptation  to  impose 
some  such  injurious  restrictions?  True,  the 
temptation  may  be  lessened  because  the  incre- 
ment of  income  may  mainly  accrue  to  the 
immigrant's  landlord,  and  not  to  the  man  him- 
self; but  this  is  but  a  poor  consolation  to  the 
socialist. 

But  even  if  cities  do  not  endeavour  to  retain 
for  their  own  citizens  the  benefits  of  their 
savings  in  some  objectionable  manner,  it  does 
seem  probable  that,  just  as  individualism  is 
inevitably  accompanied  by  competition  between 
individuals,  so  will  municipal  industry,  as 
distinct  from  national  industry,  inevitably  tend 


MUNICIPAL  COMPETITION       141 

to  produce  competition  between  different  cities 
in  certain  circumstances.  Municipal  socialists 
are,  no  doubt,  honestly  striving  to  avoid  the 
admitted  evils  of  the  existing  competitive 
system  ;  but  they  seem  blind  to  the  fact  that 
the  new  form  of  competition  which  they  may 
be  creating  may  also  be  attended  by  serious 
evils.  Competition  between  civic  authorities 
will,  it  is  true,  only  be  felt  when  competitive 
industries  are  municipalised.  But  even  now 
some  English  cities  are  spending  their  money 
in  establishing  places  of  amusement  for  tourists 
and  in  advertising  their  attractions ;  although 
such  advertisements  are  no  less  wasteful  than 
those  in  private  industry,  and  although  their 
success,  by  drawing  away  visitors  from  other 
localities,  would  be  an  indisputable  injury  to 
their  rivals.  History  teaches  us  that  com- 
mercial rivalry  is  one  of  the  most  deep-seated 
causes  of  national  enmity ;  and  it  is  there- 
fore quite  conceivable  that  such  commercial 
struggles  between  cities  might  in  future  become 
very  bitter  and  harmful.  Here,  then,  is  another 
argument  in  favour  either  of  strictly  limiting 
municipal  industries  to  local  monopolies,  or 
of  national  industry  as  opposed  to  municipal 
industry. 

But  these  vague  speculations  as  to  a  possible 


142  MUNICIPAL  SOCIALISM 

future  must  no  longer  detain  us,  and  we  must 
return  to  the  straight  path  of  our  argument — 
namely,  to  the  consideration  of  the  question 
whether  municipal  ownership  is  a  step  in  the 
direction  of  awarding  the  whole  product  of 
labour  to  the  labourer.  If  a  transfer  of  wealth 
from  the  rich  to  the  poor  is  the  end  sought,  we 
have  seen  that  it  is  but  clumsily  and  ineffectively 
attained  by  means  of  municipal  ownership  ;  and 
that,  when  a  city  is  in  debt,  it  would  be  wiser 
to  attempt  to  attain  this  end  by  imposing  addi- 
tional taxation  in  order  to  pay  off  that  debt. 
Municipal  ownership  is,  in  fact,  not  the  best 
step  that  can  be  taken  in  the  desired  direction  ; 
and  rational  socialists  should  rather  devote  their 
attention  to  questions  connected  with  taxation 
if  a  redistribution  of  wealth  be  their  main 
object. 

The  second  of  the  rights  on  which  the 
aspirations  of  socialists  are  said  to  be  based — 
namely,  the  right  to  work  and  wages  —  still, 
however,  remains  to  be  considered.  In  its 
crudest  form,  if  made  in  connection  with  muni- 
cipal ownership,  the  demand  for  this  right  is 
a  demand  that  every  man  who  is  out  of 
work  shall  be  given  employment  at  a  muni- 
cipal industry.  This  demand  could  not  be 
granted  without  the  establishment  of  some 


REGULARITY   OF  WORK         143 

very  advanced  socialistic  system  ;  and  it  must, 
therefore,  be  dismissed  as  being  outside  the 
scope  of  these  lectures. 

The  general  question  of  the  unemployed  may, 
however,  be  held  to  be  closely  connected  with 
this  right  to  work  and  wages  ;  and  it  is,  there- 
fore, not  out  of  place  to  consider  briefly  whether 
municipal  ownership  tends  to  make  employment 
more  or  less  regular.  Where  municipal  industry 
is  carried  on  like  other  industries,  and  where 
employees  are  dismissed  when  their  services 
are  not  likely  to  be  required  for  some  little 
time  to  come,  then  obviously  the  regularity  of 
employment  is  in  no  way  directly  affected  by 
the  municipalisation  of  a  number  of  industries. 
To  conduct  industry  thus  is,  however,  certainly 
not  the  ideal  either  of  socialists  or  of  indi- 
vidualists ;  and,  although  the  latter  may  see 
no  way  of  avoiding  the  resulting  evils,  the 
advocates  of  municipal  industry  certainly  do 
hope  to  make  employment  more  regular  by 
the  municipalisation  of  industry.  When  the 
London  County  Council  last  winter  began  to 
lose  heavily  by  its  steamboat  service,  one 
councillor  declared  that  it  was  a  point  of 
honour  to  keep  their  employees  in  regular 
work,  profit  or  no  profit ;  but  in  this  case 
honour  was  vanquished  by  the  London  fogs, 


144  MUNICIPAL  SOCIALISM 

and  the  steamboat  service  was  suspended  when 
the  loss  became  very  great.  Civic  authorities 
will  no  doubt,  however,  as  a  rule,  incur 
greater  losses  than  private  proprietors  in  order 
to  retain  their  hands  at  work ;  for  it  requires 
some  courage  on  the  part  of  the  vote-loving 
councillor,,  even  when  he  believes  that  muni- 
cipal employees  should  be  treated  no  better 
than  private  employees,  to  act  on  that  belief. 
To  retain  extra  hands  must  add  to  the  cost  of 
manufacture,  and  such  action  on  the  part  of 
civic  authorities  must  result  in  prices  being 
raised,  when  consumers  are  in  effect  taxed,  or 
in  a  diminution  of  profits,  when  an  additional 
burden  is  thrown  on  tax-payers.  Such  addi- 
tional burdens  may  exist  unfelt  at  all  times  ; 
but  the  probability  of  unnecessary  hands  being 
retained  in  municipal  industries  is  greatest 
when  trade  is  slack.  Taxation  always  dis- 
courages industry ;  and  the  additional  burden 
thus  thrown  on  consumers  or  tax-payers  in 
long  periods  of  depression  must  tend  to 
increase  the  evil.  Thus  the  municipalisation 
of  many  industries,  and  not  of  all  industry, 
would  benefit  the  employees  thus  municipal- 
ised ;  but  it  would  add  somewhat  to  the 
sufferings  of  that  margin  of  indifferent  work- 
men in  private  industry,  who  always  find  it 


CONCLUSION  145 

hard  to  obtain  employment.  The  lot  of  the 
working  classes  would  become  more  unequal, 
not  more  equal ;  and  a  step  contrary  to  the 
ideals  of  socialists  would  in  this  respect  have 
been  taken. 

Thus,  whether  the  right  to  the  whole  product 
of  labour  or  the  right  to  work  and  wages  be 
the  guiding  principle  of  socialists,  we  see  that 
little  or  no  progress  is  made  in  the  desired 
direction  by  the  mere  municipalisation  by 
present  methods  of  a  number  of  industries. 
Socialists,  no  doubt,  however,  wish  to  muni- 
cipalise one  industry  after  another  until  all 
capital  is  thus  nationalised  ;  and  it  is  by  the 
results  hoped  to  be  obtained  in  this  final  stage 
of  social  evolution  that  they  would  be  judged. 
Municipal  ownership  and  socialism  are  no 
doubt  different ;  but  surely  it  is  most  im- 
probable that,  in  cases  where  harmful  results 
immediately  spring  from  municipal  ownership, 
it  can  be  the  right  step  to  take  whatever  be 
the  ultimate  goal  we  should,  in  truth,  seek  to 
reach.  Would  not  a  very  widely  extended 
experiment  in  municipal  ownership  afford  a 
valuable  indication  of  the  conditions  which 
would  exist  under  a  completely  socialistic 
system?  With  this  end  in  view  I  should 
rejoice  to  see  such  an  experiment  tried  in 

T 


146  MUNICIPAL   SOCIALISM 

any  country  but  my  own.  If  the  result  was 
that  taxation  direct  and  indirect  was  no 
heavier  than  at  present,  that  corruption  was 
not  increased,  and  that  progress  was  not 
checked,  then  I  should  have  to  own  that  I 
was  mistaken,  and  that  socialists  might  fairly 
point  to  such  results  as  telling  strongly  in 
favour  of  their  views. 

But  does  not  the  amount  of  national  and 
municipal  industry  now  in  existence  constitute 
a  sufficient  basis  to  enable  impartial  enquirers 
armed  with  full  powers  to  arrive  at  reliable 
conclusions?  Rational  socialists,  who  only 
wish  to  see  their  proposed  system  introduced 
if,  in  truth,  it  would  be  beneficial,  should  join 
with  individualists  in  insisting  on  a  thorough 
and  searching  investigation  into  the  facts  now 
before  us :  an  investigation  which  has  thus 
far  been  somewhat  shunned  by  the  advocates 
of  municipal  ownership  in  England.  Cannot 
we  all  agree  that  our  wisest  course  is  now 
to  study  what  we  see  rather  than  to  advance 
further  along  a  path  which  may  prove  to  be 
leading  us  astray?  If  socialists  are  right, 
this  might  not  even  cause  delay ;  because 
their  case  would  thus  be  strengthened.  If 
individualists  are  right,  the  gain  might  be 
enormous ;  because  attention  would  thus  be 


CONCLUSION  147 

directed    to    more    rational    methods    of   social 
reform. 

There  is,  however,  no  chance  whatever  that 
such  a  policy  of  waiting  and  investigating 
will  be  adopted ;  and  we  in  Europe  are 
destined  for  a  time  to  march  in  the  direction 
of  socialism.  By  all  means,  therefore,  let 
socialism  be  studied.  As  already  remarked, 
this  word  covers  many  meanings.  At  one 
end  of  the  scale  it  merely  denotes  the  desire 
to  benefit  our  fellow-creatures  —  an  object  foi 
which  all  can  unite.  At  the  other  extreme  it 
means  a  definite  and  formulated  method  ol 
placing  the  production  and  distribution  of  all 
goods  under  the  management  of  the  State. 
These  may  be,  indeed,  very  different  medicines, 
and  we  must  be  on  our  guard  against  those  who 
would  induce  us  to  swallow  a  stronger  dose  at 
the  same  time  as  a  weaker  one,  by  including 
both  within  the  same  coating  of  sugar.  The 
mere  mechanical  difficulties  connected  with  the 
distribution  by  the  State  of  all  work  and  of  all 
rewards  for  work  done  are  appalling,  though 
conceivably  not  insurmountable.  But  the  diffi- 
culties which  lie  deep  in  the  roots  of  human 
nature  are  even  greater.  If  some  fairy,  by  a 
stroke  of  her  magic  wand,  could  make  all  our 
local  administrators  as  diligent  in  their  public 


148  MUNICIPAL  SOCIALISM 

duties  as  in  their  private  affairs,  as  ready  to 
consider  the  claims  of  minorities  as  those  of 
majorities,  as  anxious  to  look  to  the  future  as 
to  the  immediate  effects,  and  also  wholly  in- 
corruptible, then  this  would  be  not  a  step,  but 
a  leap  in  the  direction  of  true  social  reform, 
and  a  leap  at  which  we  should  all  rejoice. 
In  such  idyllic  conditions,  no  doubt  many 
additional  duties  could  be  thrown  on  elected 
bodies.  But  even  then  I  could  not  call  my- 
self a  socialist  according  to  the  most  extreme 
meaning  attached  to  that  word,  unless  convinced 
that  under  any  proposed  socialistic  system  I 
should  retain  my  sense  of  freedom,  and  that 
others  would  retain  those  powers  of  initiative 
on  which  the  progress  of  the  world  depends. 

Those  of  us  who  feel  compelled  to  abandon 
the  dream  of  formulated  socialism  should  not 
be  discouraged  as  reformers.  We  should  look 
for  guiding  lights  elsewhere.  It  may  some- 
times be  right  to  do  present  harm  that  future 
good  may  come ;  but  the  future  good  must 
be  most  clearly  demonstrated  before  this  is 
right.  The  world  we  see  around  us  has  been 
developed  by  little  steps,  each  step  being  taken 
solely  because  of  its  fitness  to  the  immediate 
conditions ;  and  we  must  be  cautious  in 
endeavouring  to  improve  upon  the  system  of 


CONCLUSION  149 

evolution  in  force  throughout  the  visible 
universe.  All  primary  results,  whether  im- 
mediate or  future,  should  be  held  in  view ; 
whilst  little  reliance  should  be  placed  on  mere 
speculations  as  to  the  results  of  untried  systems. 
Acting  in  this  spirit,  we  should  endeavour  to 
take  many  little  steps,  each  with  the  object 
of  gradually  elevating  the  condition  of  all 
classes,  but  especially  of  the  poorer  classes. 
These  steps  may  be  either  in  the  direction  of 
reforming  the  laws  affecting  taxation  or  adminis- 
tration, or  may  be  made  with  the  higher  aim 
of  raising  the  ethical  standard  of  those  who 
frame  or  administer  these  laws.  But,  which- 
ever way  we  may  look,  we  can  easily  fill  our 
days  with  good  works,  all  in  the  direction 
of  true  social  reform,  even  if  during  our 
whole  lives  not  a  single  additional  industry 
be  municipalised. 


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